Nokia has two user departments, Wireless Communications & Digital Communications

Question

Nokia has two user departments, Wireless Communications & Digital Communications. The two support depts are TS and R&D.; The cost incurred in each is: Wireless Comm $110,000, Digital Comm $60,000, TS $80,000 and R& D &90,000. The actual level of support is: Supplied by TS- Used by R & D 20%, Wireless 50%, Digital 30%. Supplied by R & D- Used by TS 30%, Wireless 25%, Digital 45%. Determine the cost allocated to: Wireless Comm using the direct method Digital Comm using the direct method Wireless Comm using the step down method (allocating TS first) Wireless Comm using the step down method (allocating R & D first) Wireless Comm using the reciprocal method Digital Comm using the reciprocal method

Explanation / Answer

Direct method

Step down method

Allocation TS first

Allocating R&D first

Reciprocal method

TS = $80,000 + 30% {$90,000 + 20% (TS)}

TS = 80,000 + $27,000 +6%TS

TS= 113,830

Wireless Digital TS R&D Cost $110,000 60,000 80,000 90,000 TS Allocation    50,000 30,000 (80,000) - R&D allocation    32,143 57,857 (90,000) cost allocated $192,143 $147,857 $0 $0

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