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Q.1 Compare your cost allocations from the direct and reciprocal methods. omment on how similar or different they are, and make a recommendation to FMU leadership as to which it should use for allocating these costs. Q.2 Should FMU consider using the reciprocal method for allocating some of the support service costs while using the direct method for others? Explain. If it did, which support services would you recommend for the reciprocal method? Explain why.

Q.1 Compare your cost allocations from the direct and reciprocal methods. omment on how similar or different they are, and make a recommendation to FMU leadership as to which it should use for allocating these costs. Q.2 Should FMU consider using the reciprocal method for allocating some of the support service costs while using the direct method for others? Explain. If it did, which support services would you recommend for the reciprocal method? Explain why.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Q.1 Compare your cost allocations from the direct and reciprocal methods. omment on how similar or different they are, and make a recommendation to FMU leadership as to which it should use for allocating these costs.

Q.2 Should FMU consider using the reciprocal method for allocating some of the support service costs while using the direct method for others? Explain. If it did, which support services would you recommend for the reciprocal method? Explain why.

 

Farmer's Market United (FMU) is an umbrella organization for all individuals who are go-getters in home-grown produce, homemade jams/jellies, artisan breads, and other hand-crafted items to be sold on local street corners. It represents a proud group of folks who are trying to keep the small producer and the health-conscious consumer top-of-mind when it comes to filling the refrigerator and pantry. As a large organization that provides a variety of services for its regional member clubs, FMU continually strives to better understand its own profitability. FMU has four key support services to assist its members: Member Services, Social Media, Resource Deployment, and Administrative Services. These four support departments exist for the benefit of the three operating segments, which are organized geographically: East, Central, and West. While the support services primarily assist the operating segments, they also cross over and assist each other. The services offered by the support departments, along with the original cost of each support department, are as follows. Original cost Member Services hours Social Media hours Resource Deployment hours Admin. Services hours Member Services $20,000 100 100 Support Departments Social Media $30,000 200 300 Resource Deployment $40,000 I 200 Admin. Services $50,000 1 East Operating Segments Not available 600 500 400 500 Central Not available 300 500 500 400 West Not available 500 500 600 400
Transcribed Image Text:Farmer's Market United (FMU) is an umbrella organization for all individuals who are go-getters in home-grown produce, homemade jams/jellies, artisan breads, and other hand-crafted items to be sold on local street corners. It represents a proud group of folks who are trying to keep the small producer and the health-conscious consumer top-of-mind when it comes to filling the refrigerator and pantry. As a large organization that provides a variety of services for its regional member clubs, FMU continually strives to better understand its own profitability. FMU has four key support services to assist its members: Member Services, Social Media, Resource Deployment, and Administrative Services. These four support departments exist for the benefit of the three operating segments, which are organized geographically: East, Central, and West. While the support services primarily assist the operating segments, they also cross over and assist each other. The services offered by the support departments, along with the original cost of each support department, are as follows. Original cost Member Services hours Social Media hours Resource Deployment hours Admin. Services hours Member Services $20,000 100 100 Support Departments Social Media $30,000 200 300 Resource Deployment $40,000 I 200 Admin. Services $50,000 1 East Operating Segments Not available 600 500 400 500 Central Not available 300 500 500 400 West Not available 500 500 600 400
Direct Method: Original cost Allocate Member Services Allocate Social Media Allocate Resource Deployment Allocate Admin. Services Total Reciprocal Method: Original costs Allocate Member Services Allocate Social Media Allocate Resource Deployment Allocate Admin Services Total supporting cost Member Services $20,000 (20,000) Member Services $20,000 (25,146.20) 2,514.62 2,631.58 $0 $0 Support Departments Social Media $30,000 (30,000) $0 Support Departments Social Media $30,000 (42,923.98) 5,029.24 7,894.74 Resource Deployment $0 $40,000 (40,000) Resource Deployment (45,263.16) 5,263.16 $0 $0 Admin. Services $50,000 $40,000 $50,000 (50,000) Admin Services (50,000) East $8,571.43 East 10,000.00 10,666.67 19,230.76 Operating Departments $- 10,776.94 14,307.99 10,058.48 $0 $48,468.86 $43,003.66 13,157.89 Central $4,285.71 10,000.00 13,333.33 15,384.62 Operating Units Central $- 5,388.47 14,307.99 12,573.10 10,526.32 West $7,142.86 10,000.00 16,000.00 15,384.62 $48,527.48 West $- 8,980.79 14,307.99 15,087.72 10,526.32 T $14 $0 $48,301.30 $42,795.88 $48,902.82 $14
Transcribed Image Text:Direct Method: Original cost Allocate Member Services Allocate Social Media Allocate Resource Deployment Allocate Admin. Services Total Reciprocal Method: Original costs Allocate Member Services Allocate Social Media Allocate Resource Deployment Allocate Admin Services Total supporting cost Member Services $20,000 (20,000) Member Services $20,000 (25,146.20) 2,514.62 2,631.58 $0 $0 Support Departments Social Media $30,000 (30,000) $0 Support Departments Social Media $30,000 (42,923.98) 5,029.24 7,894.74 Resource Deployment $0 $40,000 (40,000) Resource Deployment (45,263.16) 5,263.16 $0 $0 Admin. Services $50,000 $40,000 $50,000 (50,000) Admin Services (50,000) East $8,571.43 East 10,000.00 10,666.67 19,230.76 Operating Departments $- 10,776.94 14,307.99 10,058.48 $0 $48,468.86 $43,003.66 13,157.89 Central $4,285.71 10,000.00 13,333.33 15,384.62 Operating Units Central $- 5,388.47 14,307.99 12,573.10 10,526.32 West $7,142.86 10,000.00 16,000.00 15,384.62 $48,527.48 West $- 8,980.79 14,307.99 15,087.72 10,526.32 T $14 $0 $48,301.30 $42,795.88 $48,902.82 $14
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