Data Master is a computer software consulting company. Its three major functional areas are computer programming, information systems consulting, and software training. Cynthia Moore, a pricing analyst in the Accounting Department, has been asked to develop total costs for the functional areas. These costs will be used as a guide in pricing a new contract. In computing these costs, Moore is considering three different methods of allocating overhead costs-the direct method, the step method, and the reciprocal method. Moore assembled the following data on overhead from its two service departments, the Information Systems Department and the Facilities Department. Service Departments User Departments Info Systems Facilities Computer Program Consult Training Total Budgeted Overhead $ 50,000 $ 25,000 $ 75,000 $ 110,000 $ 85,000 $ 345,000 Info Systems (hrs.) 400 1,100 600 900 3,000 Facilities (Square feet) 200,000 400,000 600,000 800,000 2,000,000 Information systems are allocated on the basis of hours of computer usage; facilities are allocated on the basis of floor space. Required: Allocate the service department costs to the user departments using the step method. Allocate Information Systems first and round to the nearest whole dollar. Provide total user department costs.

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter4: Activity-based Costing

Section: Chapter Questions

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Data Master is a computer software consulting company. Its three major functional areas are computer programming, information systems consulting, and software training. Cynthia Moore, a pricing analyst in the Accounting Department, has been asked to develop total costs for the functional areas. These costs will be used as a guide in pricing a new contract. In computing these costs, Moore is considering three different methods of allocating overhead costs-the direct method, the step method, and the reciprocal method. Moore assembled the following data on overhead from its two service departments, the Information Systems Department and the Facilities Department.

	Service Departments		User Departments
	Info Systems	Facilities		Computer Program	Consult	Training	Total
Budgeted Overhead	$	50,000		$	25,000			$	75,000	$	110,000	$	85,000	$	345,000
Info Systems (hrs.)					400				1,100		600		900		3,000
Facilities (Square feet)		200,000							400,000		600,000		800,000		2,000,000

Information systems are allocated on the basis of hours of computer usage; facilities are allocated on the basis of floor space.

Required:

Allocate the service department costs to the user departments using the step method. Allocate Information Systems first and round to the nearest whole dollar. Provide total user department costs.

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