:= Question o i Data Table Support Departments Operating Departments Information

Question

:= Question o i Data Table Support Departments Operating Departments Information DomesticWorld Administration Technology Tours Tours Total ave Budgeted overhead costs before any 1.350,000 S 1,860000 $ 3,910,000 interdepartment cost allocations 400,000 $ 300,000 Support work furnished by Administration od erh Budgeted administration salaries Percentage 80,000 50,000 S 70,000 200,000 100% 40% 25% 35% by Information Technology -S2,800 S Budgeted IT service hours Percentage 400 10% 800 S 20% 4,000 100% ted 70% mation mount ents by cell Print Done neratine Denartments

Explanation / Answer

Answer a. Support Department Cost Allocation Statement Under Direct Method Support Operating Administration Information Technology Domestic Tours World Tours Overhead Costs                400,000               300,000           1,350,000            1,860,000 Allocation of Administration              (400,000)               166,667                233,333 Allocation of Information Technology             (300,000)               233,333                  66,667 Total Allocated Costs                            -                             -             1,750,000            2,160,000 Answer b. Support Department Cost Allocation Statement Under Step Down Method (Allocate Administration First) Support Operating Administration Information Technology Domestic Tours World Tours Overhead Costs                400,000               300,000           1,350,000            1,860,000 Allocation of Administration              (400,000)               160,000               100,000                140,000 Allocation of Information Technology             (460,000)               357,778                102,222 Total Allocated Costs                            -                             -             1,807,778            2,102,222 Answer c. Support Department Cost Allocation Statement Under Step Down Method (Allocate IT First) Support Operating Administration Information Technology Domestic Tours World Tours Overhead Costs                400,000               300,000           1,350,000            1,860,000 Allocation of Information Technology                   30,000             (300,000)               210,000                  60,000 Allocation of Engineering              (430,000)                           -                 179,167                250,833 Total Allocated Costs                            -                             -             1,739,167            2,170,833 Allocation of Information Technology Engineering - $250,000 X 15%                   37,500 Eastern - $250,000 X 50%                125,000 Western - $250,000 X 35%                   87,500 Allocation of Engineering Eastern - $337,500 X 25/70                120,536 Western - $337,500 X 45/70                216,964 Answer d-1. Reciprocal method - Linear Equations Express Support department budgeted costs and reciprocal relationships in the form of linear equations: Equation 1 - Admn. = $400,000 + 0.10 IT Equation 2 - IT = $300,000 + 0.40 Admin. Putting Equation 1 in Equation 2, we get IT = $300,000 + 0.40 ($400,000 + 0.10 IT) IT = $300,000 + $160,000 + 0.04 IT IT = 479,167 (Approx.) Putting value of IT in Equation 1, we get Admin. = $400,000 + 0.10 X $479,167 Admin. = $447,917 (Approx.) Now, Allocating Support Department Cost to Operating Departments using Reciprocal Method: Support Operating Administration Information Technology Domestic Tours World Tours Overhead Costs                400,000               300,000           1,350,000            1,860,000 Allocation of Admin. - 40:25:35              (447,917)               179,167               111,979                156,771 Allocation of IT - 10:70:20                   47,917             (479,167)               335,417                  95,833 Total Allocated Costs                           (0)                          (0)           1,797,396            2,112,604 Answer d-2. Reciprocal method - Rrepeated Iterations Support Operating Administration Information Technology Domestic Tours World Tours Overhead Costs                400,000               300,000           1,350,000            1,860,000 First Allocation of Admin. - 40:25:35              (400,000)               160,000               100,000                140,000               460,000 First Allocation of IT - 10:70:20                   46,000             (460,000)               322,000                  92,000 Second Allocation of Admin. - 40:25:35                (46,000)                 18,400                 11,500                  16,100 Second Allocation of IT - 10:70:20                     1,840               (18,400)                 12,880                     3,680 Third Allocation of Admin. - 40:25:35                   (1,840)                       736                       460                        644 Third Allocation of IT - 10:70:20                           74                     (736)                       515                        147 Fourth Allocation of Admin. - 40:25:35                         (74)                          29                          18                           27 Fourth Allocation of IT - 70:20                            -                         (29)                          23                             6 Total Allocated Costs                            -                             -             1,797,396            2,112,604

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