36) The direct method allocates each support department’s costs to operating departments but NOT to other support departments.
37) The step-down method allocates support department costs to other support departments and to operating departments in a sequential manner.
38) The reciprocal method of support department cost allocation is the most precise method and therefore is used most often.
39) 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 credit hours for a department. The Facility and Technology Maintenance budget is $350,000, while the Enrollment Services budget is $950,000. The following chart summarizes budgeted amounts and allocation-base amounts used by each department:
Services Provided: (Annually)
Budget
Engineering
Computer Sciences
F&T Maintenance
Enrollment Service
F&T Maintenance
(in hours)
$350,000
2,000
5,000
Zero
1,000
Enrollment Service
(in credit hrs)
$950,000
24,000
36,000
2,000
Zero
Required:
Use the direct 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.
Answer:
40) 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 credit hours for a department. The Facility and Technology Maintenance budget is $350,000, while the Enrollment Services budget is $950,000. The following chart summarizes budgeted amounts and allocation-base amounts used by each department:
Services Provided: (Annually)
Budget
Engineering
Computer Sciences
F&T Maintenance
Enrollment Service
F&T Maintenance
(in hours)
$350,000
1,000
2,000
Zero
5,000
Enrollment Service
(in credit hrs)
$950,000
24,000
36,000
2,000
Zero
Required:
Prepare a schedule which allocates service department costs using the step-down method with the sequence of allocation based on the highest-percentage support concept. Compute the total amount of support costs allocated to each of the two principal operating departments, Engineering and Computer Sciences.
41) 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 credit hours for a department. The Facility and Technology Maintenance budget is $350,000, while the Enrollment Services budget is $950,000. The following chart summarizes budgeted amounts and allocation-base amounts used by each department:
Services Provided: (Annually)
Budget
Engineering
Computer Sciences
F&T Maintenance
Enrollment Service
Engineering
$3,500,000
Computer Sciences
$1,400,000
F&T Maintenance
(in hours)
$350,000
2,000
1,000
Zero
5,000
Enrollment Service
(in credit hrs)
$950,000
24,000
36,000
2,000
Zero
Required:
a.Set up algebraic equations in linear equation form for each activity.
b.Determine total costs for each department by solving the equations from part (a) using the reciprocal method.
(Engineering= Eng; Computer Sciences = CS; Facility and Technical Maintenance = FTM; Enrollment Service = ES)
42) Campaign Printing has two service departments, S1 and S2, and two production departments, P1 and P2.
The data for May were as follows:
Services provided to:
Activity
Costs
S1
S2
P1
P2
S1
$90,000
10%
40%
50%
S2
$60,000
20%
55%
25%
Fixed Costs
P1
$360,000
P2
$520,000
Required:
a.Set up algebraic equations in linear form for each activity.
b.Determine total costs for each department by solving the equations from part (a) using the reciprocal method.
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