H2. Problem 11-66 (Algo) Reciprocal Cost Allocation-Outsourcing a Service Department (LO 11-4, 5)Great Eastern Credit Union (GECU) has two operating departments (Branches and Electronic) and three service departments(Processing, Administration, and Maintenance). During July, the following costs and service department usage ratios were recorded.SupplyingUsing DepartmentProcessing Administration Maintenance50%=JJJJJ20%$325,000DepartmentProcessingAdministrationMaintenanceDirect cost10%$92,000Variable costsFixed costsTotal costsAvoidable fixed costs$520,000a. Processing Departmentb. Administration DepartmentC. Maintenance DepartmentBranchesMaximumAmount10%$ 210,00060%20%$4,450,000Electronic40%The cost accountant at Great Eastern Credit Union estimates that the cost structures in its departments are as follows.Processing Administration Maintenance BranchesElectronic$59,000$160,000$130,000 $1,600,000$1,500,00033,000360,000195,0002,850,000850,000$2,350,000$92,000$520,000$325,000$4,450,000$14,000$280,000$ 80,000$ 650,000 $ 670,00040%50%Required:a. If GECU outsources the Processing Department, what is the maximum it can pay an outside vendor without increasing total costs?b. If GECU outsources the Administration Department, what is the maximum it can pay an outside vendor without increasing totalcosts?c. If GECU outsources the Maintenance Department, what is the maximum it can pay an outside vendor without increasing total costs?$2,350,000

Definition: Outsourcing: It is a practice in business where a company hires an outside party to…

›blem 11-66 (Algo) Reciprocal Cost Allocation-Outsourcing a Service Department (LO 11-4, 5) at Eastern Credit Union (GECU) has two operating departments (Branches and Electronic) and three service departments cessing, Administration, and Maintenance). During July, the following costs and service department usage ratios were rec Using Department upplying partment ocessing ministration intenance _rect cost Processing 10% $92,000 ariable costs xed costs stal costs voidable fixed costs Administration 50% 0 20% $520,000 Maintenance $325,000 Branches 10% 60% 20% $4,450,000 Electronic 40% 40% 50% $2,350,000 cost accountant at Great Eastern Credit Union estimates that the cost structures in its departments are as follows. Processing Administration Maintenance Branches $59,000 $160,000 $130,000 $1,600,000 33,000 360,000 $520,000 195,000 2,850,000 $325,000 $4,450,000 $92,000 $14,000 $280,000 $ 80,000 $ 650,000 $ 670,000 Electronic $1,500,000 850,000 $2,350,000 uired: GECU outsources the Processing Department, what is the maximum it can pay an outside vendor without increasing total GECU outsources the Administration Department, what is the maximum it can pay an outside vendor without increasing t

›blem 11-66 (Algo) Reciprocal Cost Allocation-Outsourcing a Service Department (LO 11-4, 5) at Eastern Credit Union (GECU) has two operating departments (Branches and Electronic) and three service departments cessing, Administration, and Maintenance). During July, the following costs and service department usage ratios were rec Using Department upplying partment ocessing ministration intenance _rect cost Processing 10% $92,000 ariable costs xed costs stal costs voidable fixed costs Administration 50% 0 20% $520,000 Maintenance $325,000 Branches 10% 60% 20% $4,450,000 Electronic 40% 40% 50% $2,350,000 cost accountant at Great Eastern Credit Union estimates that the cost structures in its departments are as follows. Processing Administration Maintenance Branches $59,000 $160,000 $130,000 $1,600,000 33,000 360,000 $520,000 195,000 2,850,000 $325,000 $4,450,000 $92,000 $14,000 $280,000 $ 80,000 $ 650,000 $ 670,000 Electronic $1,500,000 850,000 $2,350,000 uired: GECU outsources the Processing Department, what is the maximum it can pay an outside vendor without increasing total GECU outsources the Administration Department, what is the maximum it can pay an outside vendor without increasing t

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 30E: A company uses charging rates to allocate service department costs to the using departments. The...

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A company uses charging rates to allocate service department costs to the using departments. The accountant compiled the following information on one of the service departments: If Department K plans to use 1,350 hours of the service departments service in the coming year, how much of the service departments cost is allocated to Department K? a. 3,375 b. 27,300 c. 26,325 d. 23,950
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Refer to Cornerstone Exercise 7.3. Now assume that Valron Company uses the reciprocal method to allocate support department costs. Required: 1. Calculate the allocation ratios (rounded to four significant digits) for the four departments using the reciprocal method. 2. Develop a simultaneous equations system of total costs for the support departments. Solve for the total reciprocated costs of each support department. (Round reciprocated total costs to the nearest dollar.) 3. Using the reciprocal method, allocate the costs of the Human Resources and General Factory departments to the Fabricating and Assembly departments. (Round all allocated costs to the nearest dollar.) 4. What if the square footage in Fabricating were 13,300 and the square footage in Assembly were 5,700. How would that affect the allocation of support department costs?
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