MANAGERIAL ACCOUNTING W/ACCESS
17th Edition
ISBN: 9781264362905
Author: Garrison
Publisher: MCG
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Chapter IE, Problem 12IE
1.
To determine
Introduction:
Step-down method: The overhead costs of supporting incurred by the supporting department are allocated to other supporting departments and also the operating department based on the allocation base.
Allocation of the service department’s cost to the consuming department and the predetermined overhead rates in the operating department
2.
To determine
Introduction:
Direct method: Under the direct method, the overhead costs incurred by the supporting department are directly allocated to the operating department.
Allocation of the service department’s cost to the consuming department using the direct method and the predetermined overhead rate.
3.
a.
To determine
Step-down method: The overhead costs of supporting incurred by the supporting department are allocated to other supporting departments and also the operating department based on the allocation base.
The amount of overhead cost for the job using overhead rates computed in parts 1 and 2.
3.
b.
To determine
Step-down method: The overhead costs of supporting incurred by the supporting department are allocated to other supporting departments and also the operating department based on the allocation base.
The reason the step-down method is a better base for computing the predetermined rates than the direct method.
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Problem 11-65 (Static) Reciprocal Cost Allocation - Outsourcing a Service Department (LO 11-4, 5)
BluStar Company has two service departments, Administration and Accounting, and two operating departments, Domestic and International. Administration costs are allocated on the basis of employees, and Accounting costs are allocated on the basis of number of transactions. A summary of BluStar operations follows.
Administration
Accounting
Domestic
International
Employees
25
45
180
Transactions
25,000
20,000
80,000
Department direct costs
$360,000
144,000
936,000
$3,600,000
BluStar estimates that the cost structure in its operations is as follows.
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International
Variable costs
$150,000
36,000
678,000
$2,562,000
Fixed costs
210,000
108,000
258,000
1,038,000
Total costs
$360,000
144,000
936,000
$3,600,000
Avoidable fixed…
Required information
Exercise 9-35 and 9-36 (Algo)
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The Personnel Department at Hernandez Bros. is centralized and provides services to the two operating units: Miami and New York. The Miami unit is the original unit of the company and is well established. The New York unit is new, much like a start-up company. The costs of the Personnel Department are allocated to each unit based on the number of employees in order to determine unit profitability. The current rate is $620 per employee. Data for the fiscal year just ended show the following.
Miami
New York
Number of employees
1,320
420
Number of new hires
12
32
Number of employees departing
18
18
Exercise 9-35 (Algo) Unitwide versus Department Allocation-Administrative (Service) Function (LO 9-2, 3)
Required:
a. Compute the cost allocated to each unit using the current allocation system.
b. Livan, the manager of the Miami unit, is unhappy with the allocation from Personnel. He…
Exercise 11-32 (Algo) Cost Allocation: Reciprocal Method (LO 11-1)
Woodstock Binding has two service departments, IT (information Technology) and HR (Human Resources), and two
operating departments, Publishing and Binding. Management has decided to allocate IT costs on the basis of IT Tickets
(issued with cach IT request) in each department and HR casts on the basis of employees in each department
The following data appear in the company records for the current period:
IT
HR
IT tickets
1,555
Publishing
2,488
Binding
2,177
Employees
18
°
Department direct costs
$ 154,488
$ 248,490
27
$432,200
45
$395,500
Required:
Allocate the service department costs using the reciprocal method. (Matrix algebra is not required because there are only
two service departments.)
Note: Amounts to be deducted should be indicated by a minus sign. Do not round intermediate calculations.
From:
Service department coas
IT
HR
Total
Cost Allocation To:
IT
HR
Publishing
Binding
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