A. Using the direct method, how much support cost would be allocated to engineer
ID: 2461124 • Letter: A
Question
A. Using the direct method, how much support cost would be allocated to engineering and how much to social sciences?
B. Using the step-down method where you allocate F&T maintenance first, how much support cost would be allocated to engineering and how much to social sciences?
C. If you were to use the reciprocal method, how much cost would you allocate out of F&T maintenance and how much would you allocate out of enrollment service
Problem 8 (9 points) Suppose that Northern Michigan University offers only high-tech graduate-level programs. NMU has two principal operating departments, Engineering and Social Sciences, and two support departments, Facility and Technology Maintenance and Enrollment Services. The base used to allocate facility and technology maintenance is budgeted total maintenance hours. The base used to allocate enrollment services is number of credit hours for a department. The Facility and Technology Maintenance budget is $450,000, while the Enrollment Services budget is $900,000. The following chart summarizes budgeted amounts and allocation-base amounts used by each department: Services Provided: (Annually) Budget Engineering F&T; Maintenance Enrollment Service Engineering Social Sciences F&T; Maintenance (in hours) $450,000 3,000 6,000 Zero 1,000 Enrollment Service in credit hrs) $900,000 25,000 35,000 2,000 ZeroExplanation / Answer
Solution:
Operating Department --- Engineering Department & Social Science Department
Support Department --- F&T Maintenance Department & Enrollment Service Department
A. Under Direct Method
Under Direct Method Overheads of all supporting departments are allocated directly to the Operating Department ignoring services rendered to other service departments.
Allocation of Support Department’s Cost to Engineering and Social Science Operating Department
Budget
Engineering
Social Science
Allocation of F&T Maintenance Dept. Cost on the basis of service hours (3000 : 6000)
$450,000
$150,000
$300,000
Allocation of Enrollment Service Dept. cost on the basis of credit hours (25,000 : 35,000)
$900,000
$375,000
$525,000
B. Step-Down Method
Allocation of Support Department’s Cost to Engineering and Social Science Operating Department (Step Down Method)
Engineering
Social Science
F&T Maintenance
Enrollment Service
Overhead Cost as given in the question
$450,000
$900,000
Enrollment Service Dept Overheads is distributed (in credit hrs) (25:35:2:0)
362,903
508,065
29,032
($900,000)
479,032
F&T Maintenance Dept total overhead is distributed in the ratio (3:6)
159,677
319,355
($479,032)
0
522,581
827,419
0
0
C. Reciprocal Method
Please clarify the Method of Reciprocal Method. There are 3 method itself under Reciprocal Method. From which method the question is need to be solved..please advise.
Allocation of Support Department’s Cost to Engineering and Social Science Operating Department
Budget
Engineering
Social Science
Allocation of F&T Maintenance Dept. Cost on the basis of service hours (3000 : 6000)
$450,000
$150,000
$300,000
Allocation of Enrollment Service Dept. cost on the basis of credit hours (25,000 : 35,000)
$900,000
$375,000
$525,000
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