What are the total costs of the production departments (clothing and shoes) after the support department costs of information technology and human resources have been allocated using (a) the direct method, (b) the step-down method (allocate information technology first), (c) the step-down method (allocate human resources first), and (d) the reciprocal method?Assume that all of the work of the IT department could be outsourced to an independent company for $97.50 per hour. If Sportz no longer operated its own IT department, 30% of the fixed costs of the IT department could be eliminated. Should Sportz outsource its IT services? Sportz, Inc., manufactures athletic shoes and athletic clothing for both amateur and professional athletes. The company has two product lines(clothing and shoes), which are produced in separate manufacturing facilities; however, both manufacturing facilities share the same supportservices for information technology and human resources. The following shows total costs for each manufacturing facility and for each supportdepartment.Total Costs by Department(in thousands)Variable CostsFixed CostsInformation technology (IT)S 600$ 400$2,500$3,000S6,500S 2,000S 1,000$ 8,000S 4,500S 2,600S 1,400S10,500$ 7,500Human resources (HR)ClothingShoesTotal costs$15,500S22,000The total costs of the support departments (IT and HR) are allocated to the production departments (clothing and shoes) using a single rate basedon the following:Information technology: Number of IT labor-hours worked by departmentHuman resources: Number of employees supported by departmentData on the bases, by department, are given as follows:IT Hours UsedNumber of EmployeesDepartmentClothing5,040220Shoes3,96088Information technology92Human resources3,0001. What are the total costs of the production departments (clothing and shoes) after the support department costs of information technology andhuman resources have been allocated using (a) the direct method, (b) the step-down method (allocate information technology first), (c) the step-down method (allocate human resources first), and (d) the reciprocal method?2. Assume that all of the work of the IT department could be outsourced to an independent company for $97.50 per hour. If Sportz no longeroperated its own IT department, 30% of the fixed costs of the IT department could be eliminated. Should Sportz outsource its IT services?

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Managerial Accounting

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ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter5: Support Department And Joint Cost Allocation

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What are the total costs of the production departments (clothing and shoes) after the support department costs of information technology and human resources have been allocated using (a) the direct method, (b) the step-down method (allocate information technology first), (c) the step-down method (allocate human resources first), and (d) the reciprocal method?
Assume that all of the work of the IT department could be outsourced to an independent company for $97.50 per hour. If Sportz no longer operated its own IT department, 30% of the fixed costs of the IT department could be eliminated. Should Sportz outsource its IT services?

Sportz, Inc., manufactures athletic shoes and athletic clothing for both amateur and professional athletes. The company has two product lines
(clothing and shoes), which are produced in separate manufacturing facilities; however, both manufacturing facilities share the same support
services for information technology and human resources. The following shows total costs for each manufacturing facility and for each support
department.
Total Costs by Department
(in thousands)
Variable Costs
Fixed Costs
Information technology (IT)
S 600
$ 400
$2,500
$3,000
S6,500
S 2,000
S 1,000
$ 8,000
S 4,500
S 2,600
S 1,400
S10,500
$ 7,500
Human resources (HR)
Clothing
Shoes
Total costs
$15,500
S22,000
The total costs of the support departments (IT and HR) are allocated to the production departments (clothing and shoes) using a single rate based
on the following:
Information technology: Number of IT labor-hours worked by department
Human resources: Number of employees supported by department
Data on the bases, by department, are given as follows:
IT Hours Used
Number of Employees
Department
Clothing
5,040
220
Shoes
3,960
88
Information technology
92
Human resources
3,000
1. What are the total costs of the production departments (clothing and shoes) after the support department costs of information technology and
human resources have been allocated using (a) the direct method, (b) the step-down method (allocate information technology first), (c) the step-
down method (allocate human resources first), and (d) the reciprocal method?
2. Assume that all of the work of the IT department could be outsourced to an independent company for $97.50 per hour. If Sportz no longer
operated its own IT department, 30% of the fixed costs of the IT department could be eliminated. Should Sportz outsource its IT services?

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