
FINANCIAL ACCOUNTING
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![Problem 7-40 Departmental Cost Allocation: Not-for-Profit (LO 7-3, 7-5]
The Fleming Foundation is a charitable organization founded by Gaylord Fleming and Sandy Fleming. The Flemings Intended for the
charity to provide programs In health care for the eidery. particulariy those in poverty. The two main program alvislons of the
foundation are mental health for the elceriy and housing for the eldeny. In adoltion to these programs. the Foundation also provides
health care educational programs and has a significant fund-raising effort to nelp the Foundation grow and accompilsh the goals of the
founders. The Foundation is organized Into ttwo operating oepartments-education and program management. These departments are
supported by two service departments-Information technology (IT) and acministration. To summarize, there are four departments (two
service departments and two operating cepartments) and two programs mental health and housing for the eldeny). The service
department costs are allocated to the operating departments, and then the operating department costs are allocated to the programs.
There are $520.000 of costs directiy traceabie to each of the four departments. An additional $46.500 of Indirect costs is shared
among the four departments-$30,000 of whicn is allocated to the oepartments based on labor nours and $16.500 of which is
aliocated to the cepartments based on the number of personnel (nead count in thne departments.
The cost labor hours, and head count in these departments In the most recent year are as follows:
Direct
Labor
Head
Departaents
Inforation tachnology
COst
Hours
Count
$ 1e, eee
2,880
2,000
Adninistration
112,00
4
Education
Progran nanagenont
187,eae
4,0e
291,000
$ 520,e00
IT serves education, administration, and program management 20%, 20% ana 60% of its time, respectively Administration serves
education, IT, and program management 40%. 10%. and 50% of its time, respectively.
The costs of the two operating departments (education and program management) are alocated to the two programs (mentai health
and housing) as follows: the costs in Education are allocated on the basis of labor hours In the programs, while the costs in program
management are allocated using the head count used lIn the two programs. The following table shows the labor hours and nead count
consumption by the two programs.
Labor
Hour's
Head
Count
Pntal heaith
1,000
Husing
Labor boors in education
1,000
2,000
ad cout in progras sanagennt
Required:
Determine the costs allocated to the mental nealth and housing programs using the (a) airect method. (D) the step method (assuming
that iT goes first), and (c) tne reciprocal metnod. (Round percentage calculations to 4 decimal places (eg. 33.3333). Do not round
Intermediate calculations. Round your final answer to nearest whole dollar amount)
Cost Allosation
Mental Haaitn
Housing
Total
aDect Method
b.Stap Method
CRacipocal Mathoc](https://content.bartleby.com/qna-images/question/1a8daf8c-be87-4318-a3d7-e1a12acf2515/c965ace9-dd47-4f24-9006-e30e1f62b98b/9g4j16_thumbnail.png)
Transcribed Image Text:Problem 7-40 Departmental Cost Allocation: Not-for-Profit (LO 7-3, 7-5]
The Fleming Foundation is a charitable organization founded by Gaylord Fleming and Sandy Fleming. The Flemings Intended for the
charity to provide programs In health care for the eidery. particulariy those in poverty. The two main program alvislons of the
foundation are mental health for the elceriy and housing for the eldeny. In adoltion to these programs. the Foundation also provides
health care educational programs and has a significant fund-raising effort to nelp the Foundation grow and accompilsh the goals of the
founders. The Foundation is organized Into ttwo operating oepartments-education and program management. These departments are
supported by two service departments-Information technology (IT) and acministration. To summarize, there are four departments (two
service departments and two operating cepartments) and two programs mental health and housing for the eldeny). The service
department costs are allocated to the operating departments, and then the operating department costs are allocated to the programs.
There are $520.000 of costs directiy traceabie to each of the four departments. An additional $46.500 of Indirect costs is shared
among the four departments-$30,000 of whicn is allocated to the oepartments based on labor nours and $16.500 of which is
aliocated to the cepartments based on the number of personnel (nead count in thne departments.
The cost labor hours, and head count in these departments In the most recent year are as follows:
Direct
Labor
Head
Departaents
Inforation tachnology
COst
Hours
Count
$ 1e, eee
2,880
2,000
Adninistration
112,00
4
Education
Progran nanagenont
187,eae
4,0e
291,000
$ 520,e00
IT serves education, administration, and program management 20%, 20% ana 60% of its time, respectively Administration serves
education, IT, and program management 40%. 10%. and 50% of its time, respectively.
The costs of the two operating departments (education and program management) are alocated to the two programs (mentai health
and housing) as follows: the costs in Education are allocated on the basis of labor hours In the programs, while the costs in program
management are allocated using the head count used lIn the two programs. The following table shows the labor hours and nead count
consumption by the two programs.
Labor
Hour's
Head
Count
Pntal heaith
1,000
Husing
Labor boors in education
1,000
2,000
ad cout in progras sanagennt
Required:
Determine the costs allocated to the mental nealth and housing programs using the (a) airect method. (D) the step method (assuming
that iT goes first), and (c) tne reciprocal metnod. (Round percentage calculations to 4 decimal places (eg. 33.3333). Do not round
Intermediate calculations. Round your final answer to nearest whole dollar amount)
Cost Allosation
Mental Haaitn
Housing
Total
aDect Method
b.Stap Method
CRacipocal Mathoc
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