epartments (domestic and world tours) after the support department costs of Admi

Question

epartments (domestic and world tours) after the support department costs of Administration and to Requirements What are the total overhead costs of the operating departments (domestic and world tours) after the support department costs of Administration and Information Technology have been allocated using (a) the direct method, (b) the step-down method (allocate Administration first), (c) the step-down method (allocate Information Technology first), and (d) the reciprocal method using the method of repeated iterations and linear equations? nd I d th epa Print Done

Explanation / Answer

(d)

Note: There is a slight difference of $1 due to rounding off.

AD = $400000 + 10% IT IT = $300000 + 40% AD AD = $400000 + 10% X ($300000 + 40% AD) AD = $400000 + $30000 + 4% AD AD - 4% AD = $430000 0.96 AD = $430000 AD = $430000 / 0.96 = $447916.67 = $447917 IT = $300000 + 40% X $447917 = $300000 + $179166.67 = $479167

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