MANAGERIAL ACCOUNTING LL/W ACCESS
17th Edition
ISBN: 9781265537883
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.
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25
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25,000
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$150,000
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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.
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Question V – Allocate Costs with Reciprocal Method (8 Marks)
Anchor Company manufactures a variety of tool boxes. They have two operating divisions – Corporate Sales and Consumer Sales – and two support divisions –Admin and IT. Each operating division operates independently. Anchor uses the number of employees to allocate Admin costs and computer processing time to allocate IT costs. The following data are available for the month:
SUPPORT DEPT
OPERATING DEPT
Admin
IT
Corp Sales
Cons. Sales
Budgeted costs before interdivision allocations
$170,000
$400,000
$2,000,000
$1,000,000
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40
80
70
IT budgeted # of processing time
(in minutes)
600
4,000
3,400
REQUIRED:
Using the reciprocal method, allocate the support department costs.
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