Managerial Accounting
17th Edition
ISBN: 9781260247787
Author: Ray H. Garrison, Eric W. Noreen, Peter C. Brewer
Publisher: RENT MCG
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Question
Chapter IE, Problem 12IE
1.
To determine
Introduction:
Step-down method: The
Allocation of the service department’s cost to the consuming department and the predetermined overhead rates in the operating department
2.
To determine
Introduction:
Direct method: Under the direct method, the overhead costs incurred by the supporting department are directly allocated to the operating department.
Allocation of the service department’s cost to the consuming department using the direct method and the predetermined overhead rate.
3.
a.
To determine
Step-down method: The overhead costs of supporting incurred by the supporting department are allocated to other supporting departments and also the operating department based on the allocation base.
The amount of overhead cost for the job using overhead rates computed in parts 1 and 2.
3.
b.
To determine
Step-down method: The overhead costs of supporting incurred by the supporting department are allocated to other supporting departments and also the operating department based on the allocation base.
The reason the step-down method is a better base for computing the predetermined rates than the direct method.
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Problem 11-65 (Static) Reciprocal Cost Allocation - Outsourcing a Service Department (LO 11-4, 5)
BluStar Company has two service departments, Administration and Accounting, and two operating departments, Domestic and International. Administration costs are allocated on the basis of employees, and Accounting costs are allocated on the basis of number of transactions. A summary of BluStar operations follows.
Administration
Accounting
Domestic
International
Employees
25
45
180
Transactions
25,000
20,000
80,000
Department direct costs
$360,000
144,000
936,000
$3,600,000
BluStar estimates that the cost structure in its operations is as follows.
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Accounting
Domestic
International
Variable costs
$150,000
36,000
678,000
$2,562,000
Fixed costs
210,000
108,000
258,000
1,038,000
Total costs
$360,000
144,000
936,000
$3,600,000
Avoidable fixed…
Required information
Exercise 9-35 and 9-36 (Algo)
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The Personnel Department at Hernandez Bros. is centralized and provides services to the two operating units: Miami and New York. The Miami unit is the original unit of the company and is well established. The New York unit is new, much like a start-up company. The costs of the Personnel Department are allocated to each unit based on the number of employees in order to determine unit profitability. The current rate is $620 per employee. Data for the fiscal year just ended show the following.
Miami
New York
Number of employees
1,320
420
Number of new hires
12
32
Number of employees departing
18
18
Exercise 9-35 (Algo) Unitwide versus Department Allocation-Administrative (Service) Function (LO 9-2, 3)
Required:
a. Compute the cost allocated to each unit using the current allocation system.
b. Livan, the manager of the Miami unit, is unhappy with the allocation from Personnel. He…
Comprehensive support department allocations
Management at C. Pier Press has decided to allocate costs of the paper’s two support departments (administration and human resources) to the two revenue-generating departments (advertising and circulation). Administration costs are to be allocated on the basis of dollars of assets employed; human resources costs are to be allocated on the basis of number of employees. The following costs and allocation bases are available:
Department
Direct Costs
Number of Employees
Assets Employed
Administration
$390,750
5
$193,550
Human resources
246,350
4
145,850
Advertising
478,900
6
381,200
Circulation
676,300
13
935,150
Totals
$1,792,300
28
$1,655,750
a. Using the direct method, allocate the support department costs to the revenue-generating departments.Note: Round percentages in your calculation to the nearest whole percent (for example, round 34.5% to 35%).Note: Round your final answer to the nearest whole dollar.Total…
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