A company has two operating departments: Retail Shops and Online Shop. Each of the operating departments uses the services of the company's two service departments: Admin and HR. Additionally, the Admin and HR departments use the services of each other. Data concerning the past year are as follows: Retail Online Admin HR Total Shops Shop Budgeted overhead costs before any interdepartment cost allocations Support work furnished: For Admin department $250,000 $190,000 S380,000 | S470,000 S1,290,000 Number of Admin tasks 90 290 120 For HR department No. of employees 21 62 17 Required (a) Compute the total overhead costs of the operating departments (Retail Shops and Online Shop) after the service department costs of Admin and HR have been allocated using (i) the direct method. (ii) the step-down method. (using the sequence of cost of service provided) (iii) the reciprocal method. (b) Which method would you recommend that the company use to allocate service department costs? Why? You should consider different perspectives.

A company has two operating departments: Retail Shops and Online Shop. Each of the operating departments uses the services of the company's two service departments: Admin and HR. Additionally, the Admin and HR departments use the services of each other. Data concerning the past year are as follows: Retail Online Admin HR Total Shops Shop Budgeted overhead costs before any interdepartment cost allocations Support work furnished: For Admin department $250,000 $190,000 S380,000 | S470,000 S1,290,000 Number of Admin tasks 90 290 120 For HR department No. of employees 21 62 17 Required (a) Compute the total overhead costs of the operating departments (Retail Shops and Online Shop) after the service department costs of Admin and HR have been allocated using (i) the direct method. (ii) the step-down method. (using the sequence of cost of service provided) (iii) the reciprocal method. (b) Which method would you recommend that the company use to allocate service department costs? Why? You should consider different perspectives.

Name: A company has two operating departments: Retail Shops and Online Shop
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Description: A company has two operating departments: Retail Shops and Online Shop. Each of theoperating departments uses the services of the company's two service departments: Adminand HR. Additionally, the Admin and HR departments use the services of each othe

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter7: Allocating Costs Of Support Departments And Joint Products

Section: Chapter Questions

Problem 28E: Minor Co. has a job order cost system and applies overhead based on departmental rates. Service...

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A manufacturing company has two service and two production departments. Building Maintenance and Factory Office are the service departments. The production departments are Assembly and Machining. The following data have been estimated for next years operations: The direct charges identified with each of the departments are as follows: The building maintenance department services all departments of the company, and its costs are allocated using floor space occupied, while factory office costs are allocable to Assembly and Machining on the basis of direct labor hours. 1. Distribute the service department costs, using the direct method. 2. Distribute the service department costs, using the sequential distribution method, with the department servicing the greatest number of other departments distributed first.
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