Does DBA provide for departmental accounting?
DBA does not provide departmental accounting because it is not relevant to a WIP accounting system.
Departmental accounting in non-WIP systems attempts to transform work centers or shop departments into cost centers in which various expenses are allocated and charged to respective departments. Departmental accounting involves a great deal of manual intervention, including reporting labor hours and allocating overhead expenses and material usage to particular departments. These allocations are arbitrary, easily manipulated, error-prone, and of little analytical value.
In a WIP accounting system departmental accounting is replaced by absorption costing, which is far more efficient and useful. Instead of tediously reporting payroll costs to specific departments, labor is costed at work center hourly rates that are automatically applied as job labor transactions occur. Instead of manually allocating overhead expenses to various work centers, hourly work center rates for manufacturing overhead are automatically applied as job labor transactions occur.
The hourly work center rates for direct labor and manufacturing overhead are not arbitrary amounts. They are derived from overall shop rates, which are calculated from past actual costs and reported labor hours. At the work center level these overall shop rates can be factored up or down by a percentage to reflect differences among work centers in pay levels or relative overhead burden.
Absorption costing is much more useful because work center costs and productivity can be assessed at both the item and work center level. The cost rollup and job cost data views and reports break out labor and overhead hours and costs by routing sequence and associated work center. The Work Center Performance data view tracks estimated and actual labor hours at the work center level.
To summarize, departmental accounting and all the manual intervention that goes with it is not possible or needed in DBA because it is replaced by absorption accounting, which occurs automatically as job labor transactions are made.
