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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Chapter 15, Problem 15.34P
Support-department cost allocations; single-department cost pools; direct, step-down, and reciprocal methods. 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 costs (in thousands) for each manufacturing facility and for each support department.
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:
| Department | IT Hours Used | Number of Employees |
| Clothing | 10,080 | 440 |
| Shoes | 7,920 | 176 |
| Information technology | — | 184 |
| Human resources | 6,000 | — |
- 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?
Required
- 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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Support-department cost allocations; single-department cost pools; direct, step-down, and reciprocal methods. 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 costs (in thousands) for each manufacturing facility and for each support department.
The Sunland Company makes wheels and wings for ground transport vehicles and drones. In addition to the key manufacturing
departments, Sunland needs two key support services, provided by its Maintenance and IT departments.
The Maintenance costs are allocated to other departments based on the square footage of space each department occupies. The IT
department allocates its costs to other departments based on the amount of time the IT employees spend assisting the other
departments. The cost information of all four departments, along with their usage information for both allocation bases, is as follows.
Initial cost
Square feet occupied
IT labor hours used
Support Departments
Maintenance
IT
$136,000 $75,000
1,200
2,000
900
Operating Departments
Wheels
Wings
$413,000 $702,000
2,400
2,565
5,600
1,935
Totals
$1,326,000
11,200
5,400
Highland Publishing Company is a large organization offering a variety of printing and binding work. The Printing and Binding departments are supported by three service departments. The costs of these service departments are allocated to other departments in the order listed below. The Personnel cost is allocated based on number of employees. The Custodial Services cost is allocated based on square feet of space occupied and the Maintenance cost is allocated based on machine-hours.
Department
Total Labor-Hours
Square Feet of Space Occupied
Number of Employees
Machine-Hours
Direct Labor-Hours
Personnel
16,400
12,600
27
Custodial Services
8,600
3,900
49
Maintenance
14,300
10,200
65
Printing
30,600
40,300
109
162,000
13,000
Binding
101,000
21,000
307
41,000
80,000
170,900
88,000
557
203,000
93,000
Budgeted overhead costs in each department for the current year are shown below:
Personnel
$ 320,000
Custodial Services
65,300
Maintenance
93,300…
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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