Best Books, an online book retailer, has two operating departments—corporate sales and consumer sales—and two support departments—human resources and information systems. The following data are available for September 2017: Read the requirements5. Requirement 1. Describe the key features of the reciprocal method. The reciprocal allocation method explicitly includes the mutual services provided (1) . Interdepartmental relationships (2) fully incorporated into the support department cost allocations. Requirement 2. Allocate the support departments' costs (human resources and information systems) to the two operating departments using the reciprocal method. Before we can allocate the support departments' costs to the two operating departments using the reciprocal method, let's first determine the linear equations for each support department. Then off-line solve for HR and IS (Information Systems), so that you may complete the allocation of the support�� departments' costs. (Abbreviations used: HR = human resources; IS = information system.) HR= (3) + (4) (5) IS= (6) + (7) (8) Now allocate the support departments' costs (human resources and information systems) to the two operating departments using the reciprocal method. Support Deparments Operating Departments HR Info. Systems Corporate Consumer Total Costs incurred Allocation of HR costs Allocation of Info. Systems costs Total budgeted costs of operating departments This time, use repeated iterations. Use parentheses or a minus sign when decreasing departments by allocating costs. Support Departments Operating Departments Reciprocal Method HR Info. Systems Corporate Consumer Total Budgeted overhead costs before interdepartment cost allocations First allocation of HR costs First allocation of Info. Systems costs Second allocation of HR costs Second allocation of Info. Systems costs Third allocation of HR costs Third allocation of Info. Systems costs Fourth allocation of HR costs Fourth allocation of Info. Systems costs Total budgeted overhead of operating departments Requirement 3. In the case presented in this exercise, which method step-down, or reciprocal Recommendation: The (9) would you recommend? Why? her two methods when there are mutual relationships among support departments. Why would you recommend this method? A. It is easy to compute and understand, and being precise is not necessary. B. It fully incorporates interdepartmental relationships into the support departments cost allocation. C. It ranks support departments in the order that the allocation is to proceed and partially recognizes the mutual services provided. 1: More Info Each sales department conducts merchandising and marketing operations independently. Best Books uses the number of employees to allocate human resources costs and processing time to allocate information systems costs. The controller of Best Books reads a widely used textbook that states that "the reciprocal method is conceptually the most defensible." He seeks your assistance. 2: Data Table Support Departments Operating Departments Human Resources Information Systems Corporate Sales Consumer Sales Budgeted costs incurred before any interdepartment cost allocations $80,000 $229,000 $990,000 $482,000 Support work supplied by human resources department Budgeted number of employees — 20 48 32 Support work supplied by information systems department Budgeted processing time (in minutes) 400 — 2,520 1,080 3: Direct allocation data Support Departments Operating Departments HR Info. Systems Corporate Consumer Total Costs incurred $80,000 $229,000 $990,000 $482,000 $1,781,000 Allocation of HR costs (80,000) 48,000 32,000 Allocation of Info. Systems costs (229,000) 160,300 68,700 Total budgeted costs of operating departments $0 $0 $1,198,300 $582,700 $1,781,000 4: Step-down allocation data Support Departments Operating Departments HR Info. Systems Corporate Consumer Total Costs incurred $80,000 $229,000 $990,000 $482,000 $1,781,000 Allocation of HR costs (80,000) 16,000 38,400 25,600 $0 245,000 Allocation of Info. Systems costs (245,000) 171,500 73,500 Total budgeted costs of operating departments $0 $1,199,900 $581,100 $1,781,000 *Proportions for services provided to other support departments: human resources (HR), 0.20000; information systems (IS), 0.10000. 5: Requirements 1. Describe the key features of the reciprocal method. 2. Allocate the support departments' costs (human resources and information systems) to the two operating departments using the reciprocal method. Use (a) linear equations and (b) repeated iterations. 3. In the case presented in this exercise, which method (direct, step-down, or reciprocal) would you recommend? Why?

Best Books, an online book retailer, has two operating departments—corporate sales and consumer sales—and two support departments—human resources and information systems. The following data are available for September 2017: Read the requirements5. Requirement 1. Describe the key features of the reciprocal method. The reciprocal allocation method explicitly includes the mutual services provided (1) . Interdepartmental relationships (2) fully incorporated into the support department cost allocations. Requirement 2. Allocate the support departments' costs (human resources and information systems) to the two operating departments using the reciprocal method. Before we can allocate the support departments' costs to the two operating departments using the reciprocal method, let's first determine the linear equations for each support department. Then off-line solve for HR and IS (Information Systems), so that you may complete the allocation of the support�� departments' costs. (Abbreviations used: HR = human resources; IS = information system.) HR= (3) + (4) (5) IS= (6) + (7) (8) Now allocate the support departments' costs (human resources and information systems) to the two operating departments using the reciprocal method. Support Deparments Operating Departments HR Info. Systems Corporate Consumer Total Costs incurred Allocation of HR costs Allocation of Info. Systems costs Total budgeted costs of operating departments This time, use repeated iterations. Use parentheses or a minus sign when decreasing departments by allocating costs. Support Departments Operating Departments Reciprocal Method HR Info. Systems Corporate Consumer Total Budgeted overhead costs before interdepartment cost allocations First allocation of HR costs First allocation of Info. Systems costs Second allocation of HR costs Second allocation of Info. Systems costs Third allocation of HR costs Third allocation of Info. Systems costs Fourth allocation of HR costs Fourth allocation of Info. Systems costs Total budgeted overhead of operating departments Requirement 3. In the case presented in this exercise, which method step-down, or reciprocal Recommendation: The (9) would you recommend? Why? her two methods when there are mutual relationships among support departments. Why would you recommend this method? A. It is easy to compute and understand, and being precise is not necessary. B. It fully incorporates interdepartmental relationships into the support departments cost allocation. C. It ranks support departments in the order that the allocation is to proceed and partially recognizes the mutual services provided. 1: More Info Each sales department conducts merchandising and marketing operations independently. Best Books uses the number of employees to allocate human resources costs and processing time to allocate information systems costs. The controller of Best Books reads a widely used textbook that states that "the reciprocal method is conceptually the most defensible." He seeks your assistance. 2: Data Table Support Departments Operating Departments Human Resources Information Systems Corporate Sales Consumer Sales Budgeted costs incurred before any interdepartment cost allocations $80,000 $229,000 $990,000 $482,000 Support work supplied by human resources department Budgeted number of employees — 20 48 32 Support work supplied by information systems department Budgeted processing time (in minutes) 400 — 2,520 1,080 3: Direct allocation data Support Departments Operating Departments HR Info. Systems Corporate Consumer Total Costs incurred $80,000 $229,000 $990,000 $482,000 $1,781,000 Allocation of HR costs (80,000) 48,000 32,000 Allocation of Info. Systems costs (229,000) 160,300 68,700 Total budgeted costs of operating departments $0 $0 $1,198,300 $582,700 $1,781,000 4: Step-down allocation data Support Departments Operating Departments HR Info. Systems Corporate Consumer Total Costs incurred $80,000 $229,000 $990,000 $482,000 $1,781,000 Allocation of HR costs (80,000) 16,000 38,400 25,600 $0 245,000 Allocation of Info. Systems costs (245,000) 171,500 73,500 Total budgeted costs of operating departments $0 $1,199,900 $581,100 $1,781,000 *Proportions for services provided to other support departments: human resources (HR), 0.20000; information systems (IS), 0.10000. 5: Requirements 1. Describe the key features of the reciprocal method. 2. Allocate the support departments' costs (human resources and information systems) to the two operating departments using the reciprocal method. Use (a) linear equations and (b) repeated iterations. 3. In the case presented in this exercise, which method (direct, step-down, or reciprocal) would you recommend? Why?

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 5CE: Refer to Cornerstone Exercise 7.3. Now assume that Valron Company uses the reciprocal method to...

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Question

Best Books, an online book retailer, has two operating departments—corporate sales and consumer sales—and two support departments—human resources and information systems.

The following data are available for September 2017:

Read the requirements5.

Requirement 1. Describe the key features of the reciprocal method.

The reciprocal allocation method explicitly includes the mutual services provided (1) .
Interdepartmental relationships (2)

fully incorporated into the support department cost allocations.

Requirement 2. Allocate the support departments' costs (human resources and information systems) to the two operating departments using the reciprocal method.

Before we can allocate the support departments' costs to the two operating departments using the reciprocal method, let's first determine the linear equations for each support department. Then off-line solve for HR and IS (Information Systems), so that you may complete the allocation of the support�� departments' costs. (Abbreviations used: HR = human resources; IS = information system.)

HR=	(3)	+	(4)	(5)

IS=	(6)	+	(7)	(8)

Now allocate the support departments' costs (human resources and information systems) to the two operating departments using the reciprocal method.

	Support Deparments	Operating Departments
	HR	Info. Systems	Corporate	Consumer	Total
Costs incurred
Allocation of HR costs
Allocation of Info. Systems costs
Total budgeted costs of operating departments

This time, use repeated iterations. Use parentheses or a minus sign when decreasing departments by allocating costs.

	Support Departments	Operating Departments
Reciprocal Method	HR	Info. Systems	Corporate	Consumer	Total
Budgeted overhead costs
before interdepartment cost allocations
First allocation of HR costs

First allocation of Info. Systems costs
Second allocation of HR costs
Second allocation of Info. Systems costs

Third allocation of HR costs
Third allocation of Info. Systems costs
Fourth allocation of HR costs
Fourth allocation of Info. Systems costs
Total budgeted overhead of operating departments

Requirement 3. In the case presented in this exercise, which method step-down, or reciprocal

Recommendation: The (9)

would you recommend? Why?

her two methods when there are mutual relationships among support departments.

Why would you recommend this method?

A. It is easy to compute and understand, and being precise is not necessary.

B. It fully incorporates interdepartmental relationships into the support departments cost allocation.

C. It ranks support departments in the order that the allocation is to proceed and partially recognizes the mutual services provided.

1: More Info

Each sales department conducts merchandising and marketing operations independently.

Best Books uses the number of employees to allocate human resources costs and processing time to allocate information systems costs. The controller of Best Books reads a widely used textbook that states that "the reciprocal method is conceptually the most defensible." He seeks your assistance.

2: Data Table

	Support Departments	Operating Departments
	Human Resources	Information Systems	Corporate Sales	Consumer Sales
Budgeted costs incurred before any interdepartment cost allocations	$80,000	$229,000	$990,000	$482,000
Support work supplied by human resources department
Budgeted number of employees	—	20	48	32
Support work supplied by information systems department
Budgeted processing time (in minutes)	400	—	2,520	1,080

3: Direct allocation data

	Support Departments	Operating Departments
	HR	Info. Systems	Corporate	Consumer	Total
Costs incurred	$80,000	$229,000	$990,000	$482,000	$1,781,000
Allocation of HR costs	(80,000)		48,000	32,000
Allocation of Info. Systems costs		(229,000)	160,300	68,700
Total budgeted costs of operating departments	$0	$0	$1,198,300	$582,700	$1,781,000

4: Step-down allocation data

	Support Departments	Operating Departments
	HR	Info. Systems	Corporate	Consumer	Total
Costs incurred	$80,000	$229,000	$990,000	$482,000	$1,781,000
Allocation of HR costs	(80,000)	16,000	38,400	25,600
	$0	245,000
Allocation of Info. Systems costs		(245,000)	171,500	73,500
Total budgeted costs of operating departments		$0	$1,199,900	$581,100	$1,781,000

*Proportions for services provided to other support departments: human resources (HR), 0.20000; information systems (IS), 0.10000.

5: Requirements

1.	Describe the key features of the reciprocal method.
2.	Allocate the support departments' costs (human resources and information systems) to the two operating departments using the reciprocal method. Use (a) linear equations and (b) repeated iterations.
3.	In the case presented in this exercise, which method (direct, step-down, or reciprocal) would you recommend? Why?

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