Gotham University offers only high-tech graduate-level programs. Gotham has two
ID: 2465617 • Letter: G
Question
Gotham University offers only high-tech graduate-level programs. Gotham has two principal operating departments, Engineering and Computer 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 credi hours for a department. The Facility and Technology Maintencance budget $350,000, while the Enrollment Services budget is $950,000. The following chart summarizes the budgeted amounts and allocation-base amounts used by each department:
Use the direct method, step down method and reciprocal method to allocate support costs to each of the two principal operating departments, Engineering and Computer Sciences. Prepare a schedule showing the support costs allocated to each department.
Budget Engineering Computer Sciences F&T Maintenance Enrollment Service F&T Maintenance hours $350,000 2,000 5,000 zero 1,000 Enrollment Service hours $950,000 24,000 36,000 2,000 zeroExplanation / Answer
direct method to allocate support costs
Engineering
Computer Science
F&T Maintenance
$350,000 × 2/7 =
$100,000
$350,000 × 5/7 =
$250,000
Enrollment Service
$950,000 × 24/60 =
$380,000
$950,000 × 36/60 =
$570,000
Total
$480,000
$820,000
step down method
Enrollment services provided to maintenance = 2,000/62,000
F&T Maintenance provides the greatest amount of service to support departments, so it is allocated first.
F&T Maintenance $350,000 to Enrollment Services = $350,000 × 5/8= $218,750
to Engineering = $350,000 × 1/8= $ 43,750
to Computer Science = $350,000 × 2/8= $ 87,500
Enrollment Service costs of $950,000 + $218,750 = $1,168,750
are allocated to Engineering and Computer Science
to Engineering = $1,168,750 × 24/60 = $467,500
to Computer Science = $1,168,750 × 36/60 = $701,250
F&T Maintenance
Enrollment Service
Engineering
Computer Science
$350,000
($350,000)
$950,000
$218,750
$ 43,750
$ 87,500
$ 0
($1,168,750)
$467,500
$701,250
Totals
$ 0
$511,250
$788,750
Reciprocal method
a. Eng = $1,400,000 + 2/8 (FTM) + 24/62 (ES)
CS = $3,500,000 + 1/8 (FTM)+ 36/62 (ES)
FTM = $350,000 + 2/62 (ES)
ES = $950,000 + 5/8 (FTM)
b. Enrollment Service = $950,000 + 0.625 (FTM)
ES = $950,000 + .625 (350,000 + 2/62 ES)
ES = $950,000 + $218,750 + .02 ES
0.98 ES = $1,168,750
ES = $1,192,602
FTM = $350,000 + 2/62 ($1,192,602) = $388,471
Engineering = $1,400,000 + 2/8 ($388,471) + 24/62 ($1,192,602)
$1,400,000 + 97,118 + 461,652 = $1,958,770
CS = $3,500,000 + 1/8 ($388,471) + 36/62 ($1,192,602)
= $3,500,000 + $48,559 + $692,479
= $4,241,038
Engineering
Computer Science
F&T Maintenance
$350,000 × 2/7 =
$100,000
$350,000 × 5/7 =
$250,000
Enrollment Service
$950,000 × 24/60 =
$380,000
$950,000 × 36/60 =
$570,000
Total
$480,000
$820,000
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