Horngren's Cost Accounting: A Managerial Emphasis (16th Edition)
16th Edition
ISBN: 9780134475585
Author: Srikant M. Datar, Madhav V. Rajan
Publisher: PEARSON
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Textbook Question
Chapter 15, Problem 15.22E
Reciprocal cost allocation (continuation of 15-21). Consider E-books again. The controller of E-books reads a widely used textbook that states that “the reciprocal method is conceptually the most defensible” He seeks your assistance.
- 1. Describe the key features of the reciprocal method.
- 2. Allocate the support departments’ costs (human resources and information systems) to the two operating departments using the reciprocal method. Use (a) linear equations and (b) repeated iterations.
- 3. In the case presented in this exercise, which method (direct, step-down, or reciprocal) would you recommend? Why?
15-21 Direct and step-down allocation. E-books, an online book retailer, has two operating departments—corporate sales and consumer sales—and two support departments—human resources and information systems. Each sales department conducts merchandising and marketing operations independently. E-books uses number of employees to allocate human resources costs and processing time to allocate information systems costs. The following data are available for September 2017:
- 1. Allocate the support departments’ costs to the operating departments using the direct method.
Required
- 2. Rank the support departments based on the percentage of their services provided to other support departments. Use this ranking to allocate the support departments’ costs to the operating departments based on the step-down method.
- 3. How could you have ranked the support departments differently?
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Students have asked these similar questions
1.
Describe the key features of the reciprocal method.
2.
Allocate the support departments' costs (human resources and information systems) to the two operating departments using the reciprocal method. Use (a) linear equations and (b) repeated iterations.
3.
In the case presented in this exercise, which method (direct, step-down, or reciprocal) would you recommend? Why?
Direct allocation data
Support Departments
Operating Departments
HR
Info. Systems
Corporate
Consumer
Total
Costs incurred
$90,000
$227,000
$994,000
$484,000
$1,795,000
Allocation of HR costs
(90,000)
49,500
40,500
Allocation of Info. Systems costs
(227,000)
158,900
68,100
Total budgeted costs of operating departments
$0
$0
$1,202,400
$592,600
$1,795,000
A
B
C
D
E
1
SUPPORT DEPARTMENTS
OPERATING DEPARTMENTS
2
Human Resources
Information Systems…
3)
Data Master is a computer software consulting company. Its three major functional areas
are computer programming, information systems consulting, and software training. Cynthia
Moore, a pricing analyst in the Accounting Department, has been asked to develop total costs for
the functional areas. These costs will be used as a guide in pricing a new contract. In computing
these costs, Moore is considering three different methods of allocating overhead costs: the direct
method, the step method, and the reciprocal method. Moore assembled the following data on
overhead from its two service departments, the Information Systems Department and the
Facilities Department.
Budgeted
Overhead
Service Departments
User Departments
Info
Systems
Facilities Computer Consulting Training
Program
$ 50,000 $ 25,000 $75,000 $110,000 $85,000 $ 345,000
Info
Systems
(hours)
Facilities 200,000
(Square
feet)
Direct Cost
Info System
Facilities
Total
400
1,100
400,000
600
900
Computer
Program
the
Information…
Required information
[The following information applies to the questions displayed below.]
Data Performance, a computer software consulting company, has three major functional areas: computer programming,
information systems consulting, and software training. Carol Bingham, a pricing analyst, has been asked to develop total
costs for the functional areas. These costs will be used as a guide in pricing a new contract. In computing these costs,
Carol is considering three different methods of the departmental allocation approach to allocate overhead costs: the
direct method, the step method, and the reciprocal method. She assembled the following data from the two service
departments, information systems and facilities:
a.
b.
Budgeted overhead (base)
Information Systems (computer hours)
Facilities (square feet)
C.
Service Departments
Information
Systems
$ 368,000
240
Direct Method
Step Method (Information Systems Goes First)
Step Method (Facilities Goes First)
Reciprocal method
Computer…
Chapter 15 Solutions
Horngren's Cost Accounting: A Managerial Emphasis (16th Edition)
Ch. 15 - Prob. 15.1QCh. 15 - Describe how the dual-rate method is useful to...Ch. 15 - How do budgeted cost rates motivate the...Ch. 15 - Give examples of allocation bases used to allocate...Ch. 15 - Why might a manager prefer that budgeted rather...Ch. 15 - To ensure unbiased cost allocations, fixed costs...Ch. 15 - Prob. 15.7QCh. 15 - What is conceptually the most defensible method...Ch. 15 - Distinguish between two methods of allocating...Ch. 15 - What are the challenges of using the incremental...
Ch. 15 - Prob. 15.11QCh. 15 - What is one key way to reduce cost-allocation...Ch. 15 - Describe how companies are increasingly facing...Ch. 15 - Distinguish between the stand-alone and the...Ch. 15 - Identify and discuss arguments that individual...Ch. 15 - Single-rate versus dual-rate methods, support...Ch. 15 - Single-rate method, budgeted versus actual costs...Ch. 15 - Dual-rate method, budgeted versus actual costs and...Ch. 15 - Support-department cost allocation; direct and...Ch. 15 - Support-department cost allocation, reciprocal...Ch. 15 - Direct and step-down allocation. E-books, an...Ch. 15 - Reciprocal cost allocation (continuation of...Ch. 15 - Allocation of common costs. Evan and Brett are...Ch. 15 - Allocation of common costs. Gordon Grimes, a...Ch. 15 - Revenue allocation, bundled products. Couture Corp...Ch. 15 - Allocation of common costs. Jim Dandy Auto Sales...Ch. 15 - Single-rate, dual-rate, and practical capacity...Ch. 15 - Prob. 15.28PCh. 15 - Fixed-cost allocation. Central University...Ch. 15 - Allocating costs of support departments; step-down...Ch. 15 - Support-department cost allocations;...Ch. 15 - Common costs. Tate Inc. and Booth Inc. are two...Ch. 15 - Prob. 15.33PCh. 15 - Support-department cost allocations;...Ch. 15 - Revenue allocation, bundled products. Boca Resorts...Ch. 15 - Support-department cost allocations; direct,...
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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Allocate the two support departments’ costs to the two operating departments using the reciprocal method. Use (a) linear equations and (b) repeated iterations.arrow_forwardData Performance, a computer software consulting company, has three major functional areas: computer programming, information systems consulting, and software training. Carol Bingham, a pricing analyst, has been asked to develop total costs for the functional areas. These costs will be used as a guide in pricing a new contract. In computing these costs, Carol is considering three different methods of the departmental allocation approach to allocate overhead costs: the direct method, the step method, and the reciprocal method. She assembled the following data from the two service departments, information systems and facilities: Service Departments Production Departments Information Systems Facilities Computer Programming Information Systems Consulting Software Training Total Budgeted overhead (base) $ 368,000 $ 184,000 $ 736,000 $ 874,000 $ 575,000 $ 2,737,000 Information Systems (computer hours) 600 1,200 300 900 3,000 Facilities (square feet) 240 960 600 600…arrow_forwardUsing the step method to allocate the service center costs, what is the total cost of programming and classes?arrow_forward
- What are support departments, and why are their costs allocated to other departments? What process is used to allocate support department costs?hello tutor. Its 2 questions in 1 number,arrow_forwardData Master is a computer software consulting company. Its three major functional areas are computer programming, information systems consulting, and software training. Cynthia Moore, a pricing analyst in the Accounting Department, has been asked to develop total costs for the functional areas. These costs will be used as a guide in pricing a new contract. In computing these costs, Moore is considering three different methods of allocating overhead costs-the direct method, the step method, and the reciprocal method. Moore assembled the following data on overhead from its two service departments, the Information Systems Department and the Facilities Department. Service Departments User Departments Info Systems Facilities Computer Program Consult Training Total Budgeted Overhead $ 50,000 $ 25,000 $ 75,000 $ 110,000 $ 85,000 $ 345,000 Info Systems (hrs.) 400 1,100 600 900 3,000 Facilities (Square feet) 200,000…arrow_forwardData Master is a computer software consulting company. Its three major functional areas are computer programming, information systems consulting, and software training. Cynthia Moore, a pricing analyst in the Accounting Department, has been asked to develop total costs for the functional areas. These costs will be used as a guide in pricing a new contract. In computing these costs, Moore is considering three different methods of allocating overhead costs: the direct method, the step method, and the reciprocal method. Moore assembled the following data on overhead from its two service departments, the Information Systems Department and the Facilities Department. Service Departments User Departments Info Systems Facilities Computer Program Consulting $ 50,000 $110,000 600 $25,000 400 $75,000 1,100 400,000 200,000 600,000 information systems are allocated on the basis of hours of computer usage; facilities are allocated on the basis of floor space. Required: Allocate the service…arrow_forward
- Q3. ADLG Company has two support departments, SS1 and SS2, and two operating departments, OD1 and OD2. The company has decided to use the direct method and allocate variable SS1 dept. costs based on the number of transactions and fixed SS1 dept. costs based on the number of employees. SS2 dept. variable costs will be allocated based on the number of service requests and fixed costs will be allocated based on the number of computers. The following values have been extracted for the allocation | Total Department variable costs Total department fixed costs Number of transactions Number of employees Number of service requests Number of computers Support Departments SS1 16,000 19,500 50 18 37 20 SS2 19,000 34,000 You are required to allocate variable and fixed costs. 55 24 22 25 Operating Departments OD1 105,000 120,000 250 47 26 31 OD2 68,000 55,000 140 38 32 37arrow_forwardWhat are the differences between single and dual rate allocation? Explain with suitable examples. b) Provide a numerical example for single rate allocation and dual rate allocation and explain the process of allocating support department costs to the operating department, assuming that: The company has two support departments “S1 & S2” and two operating departments “O1 & O2.” The company use the direct method to allocate support department costs. Note: You are required to provide numerical examples assuming the values of your own and they should not be copied from any sources.arrow_forwardQ2. PPLC Company has two support departments, SD1 and SD2, and two operating departments, ODI and OD2. The company decided to use the direct method and allocate variable SD1 dept. costs based on the number of transactions and fixed SD1 dept. costs based on the number of employees. SD2 dept. variable costs will be allocated based on the number of service requests, and fixed costs will be allocated based on the number of computers. The following information is provided: (4 Marks) (Chapter 8, Week 10) Support Departments Operating Departments SD1 SD2 ODI OD2 Total Department variable costs 18,000 19,000 51,000 35,000 Total department fixed costs 20,000 24,000 56,000 30,000 Number of transactions 30 40 200 100 Number of employees 14 18 35 30 Number of service requests 28 18 35 25 Number of computers 15 20 24 28 You are required to allocate variable and fixed costs using direct method.arrow_forward
- Which of the following is a benefit of activity-based cost management system? a.It makes it easy to identify the overall activities that bear an influence on cost. b.It is inexpensive. c.It enhances strategic planning. d.It ensures allocation of all costs on the basis of machine hours.arrow_forward2. The internal cost analysis process involves the following in what order? (A) Identify the links between the process and check for opportunities to lower costs, (B) Identify the value creating processes and the cost of each, (C) Identify the cost driver for each process and the cost per activity level. a. A, B, Cb. C, A, Bc. B, A, Cd. B, C, Aarrow_forwardPlease show your computations through excel. c. Compute the total service cost allocated to cutting department using RECIPROCAL method.arrow_forward
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