Computer Information Services is a computer software consulting company. Its thr

Question

Computer Information Services is a computer software consulting company. Its three major functional areas are computer programming, information systems consulting, and software training. Jerry Jones, a pricing analyst in the Accounting Department, has been asked to develop total costs for the functional areas. These costs will be used as a guide in pricing a new contract. In computing these costs, Jerry is considering three different methods of allocating overhead costs-the direct method, the step method, and the reciprocal method. Jerry assembled the following data on overhead from its two service departments, the Information Systems Department and the Facilities Department. Information systems is allocated on the basis of hours of computer usage; facilities are allocated on the basis of floor space. Allocate the service department costs to the user departments using the direct method. (Round to the nearest dollar and provide total user department costs). Determine the total costs in each user department

Explanation / Answer

Note:

The information system cost has been allocated in the ratio of 1100:600:900 = 11:6:9

The facility department cost has been allocated in the ratio of 400000:600000:800000 = 2:3:4

Particulars Service Departments ($) User department ($) Budgeted overhead before allocation Information systems Facilities Computer programme Consult Training 50000 25000 75000 110000 85000 Allocation of information system overhead -50000 21154 11538 17308 Allocation of Facility overhead cost -25000 5556 8333 11111 Total overhead cost after allocation 0 0 101710 129871 113419

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