Horngren's Cost Accounting: A Managerial Emphasis (16th Edition)
16th Edition
ISBN: 9780134475585
Author: Srikant M. Datar, Madhav V. Rajan
Publisher: PEARSON
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Textbook Question
Chapter 15, Problem 15.20E
Support-department cost allocation, reciprocal method (continuation of 15-19). Refer to the data given in Exercise 15-19.
- 1. Allocate the two support departments’ costs to the two operating departments using the reciprocal method. Use (a) linear equations and (b) repeated iterations.
Required
- 2. Compare and explain differences in requirement 1 with those in requirement 1 of Exercise 15-19. Which method do you prefer? Why?
15-19 Support-department cost allocation; direct and step-down methods. Phoenix Partners provides management consulting services to government and corporate clients. Phoenix has two support departments—administrative services (AS) and information systems (IS)—and two operating departments—government consulting (GOVT) and corporate consulting (CORP). For the first quarter of 2017, Phoenix’s cost records indicate the following:
- 1. Allocate the two support departments’ costs to the two operating departments using the following methods:
Required
- a. Direct method
- b. Step-down method (allocate AS first)
- c. Step-down method (allocate IS first)
- 2. Compare and explain differences in the support-department costs allocated to each operating department.
- 3. What approaches might be used to decide the sequence in which to allocate support departments when using the step-down method?
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Students have asked these similar questions
1.
Describe the key features of the reciprocal method.
2.
Allocate the support departments' costs (human resources and information systems) to the two operating departments using the reciprocal method. Use (a) linear equations and (b) repeated iterations.
3.
In the case presented in this exercise, which method (direct, step-down, or reciprocal) would you recommend? Why?
Direct allocation data
Support Departments
Operating Departments
HR
Info. Systems
Corporate
Consumer
Total
Costs incurred
$90,000
$227,000
$994,000
$484,000
$1,795,000
Allocation of HR costs
(90,000)
49,500
40,500
Allocation of Info. Systems costs
(227,000)
158,900
68,100
Total budgeted costs of operating departments
$0
$0
$1,202,400
$592,600
$1,795,000
A
B
C
D
E
1
SUPPORT DEPARTMENTS
OPERATING DEPARTMENTS
2
Human Resources
Information Systems…
Allocate the two support departments’ costs to the two operating departments using the reciprocal method. Use (a) linear equations and (b) repeated iterations.
Direct Method
Seattle Western University has provided the following data to be used in its service department cost allocations:
Required:
Using the direct method, allocate the costs of the service departments to the two operating departments. Allocate the Administration cost on the basis of student credit-hours and the Facility Services cost on the basis of space occupied.
Chapter 15 Solutions
Horngren's Cost Accounting: A Managerial Emphasis (16th Edition)
Ch. 15 - Prob. 15.1QCh. 15 - Describe how the dual-rate method is useful to...Ch. 15 - How do budgeted cost rates motivate the...Ch. 15 - Give examples of allocation bases used to allocate...Ch. 15 - Why might a manager prefer that budgeted rather...Ch. 15 - To ensure unbiased cost allocations, fixed costs...Ch. 15 - Prob. 15.7QCh. 15 - What is conceptually the most defensible method...Ch. 15 - Distinguish between two methods of allocating...Ch. 15 - What are the challenges of using the incremental...
Ch. 15 - Prob. 15.11QCh. 15 - What is one key way to reduce cost-allocation...Ch. 15 - Describe how companies are increasingly facing...Ch. 15 - Distinguish between the stand-alone and the...Ch. 15 - Identify and discuss arguments that individual...Ch. 15 - Single-rate versus dual-rate methods, support...Ch. 15 - Single-rate method, budgeted versus actual costs...Ch. 15 - Dual-rate method, budgeted versus actual costs and...Ch. 15 - Support-department cost allocation; direct and...Ch. 15 - Support-department cost allocation, reciprocal...Ch. 15 - Direct and step-down allocation. E-books, an...Ch. 15 - Reciprocal cost allocation (continuation of...Ch. 15 - Allocation of common costs. Evan and Brett are...Ch. 15 - Allocation of common costs. Gordon Grimes, a...Ch. 15 - Revenue allocation, bundled products. Couture Corp...Ch. 15 - Allocation of common costs. Jim Dandy Auto Sales...Ch. 15 - Single-rate, dual-rate, and practical capacity...Ch. 15 - Prob. 15.28PCh. 15 - Fixed-cost allocation. Central University...Ch. 15 - Allocating costs of support departments; step-down...Ch. 15 - Support-department cost allocations;...Ch. 15 - Common costs. Tate Inc. and Booth Inc. are two...Ch. 15 - Prob. 15.33PCh. 15 - Support-department cost allocations;...Ch. 15 - Revenue allocation, bundled products. Boca Resorts...Ch. 15 - Support-department cost allocations; direct,...
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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- What are the differences between single and dual rate allocation? Explain with suitable examples. b) Provide a numerical example for single rate allocation and dual rate allocation and explain the process of allocating support department costs to the operating department, assuming that: The company has two support departments “S1 & S2” and two operating departments “O1 & O2.” The company use the direct method to allocate support department costs. Note: You are required to provide numerical examples assuming the values of your own and they should not be copied from any sources.arrow_forwardRequired:1. Allocate the two support departments’ costs to the two operating departments using the following methods: a. Direct methodb. Step-down method (allocate MR first) c. Step-down method (allocate US first) d. The Algebraic/reciprocal method. 2. Compare and explain differences in the support-department costs allocated to each production department. 3. What approaches might be used to decide the sequence in which to allocate support departments when using the step-down method?arrow_forwardQ. Allocate the service department costs to the two operating departments using(i) the step-down method (Allocate Administrative Services first)(ii) the step-down method (Allocate Maintenance Services first)arrow_forward
- 1. In the context of allocating support department costs to production departments, which of the following methods is the easiest but the least accurate? a. Step-down method b. Reciprocal services method c. Sequential method d. Direct method 2. In the context of allocating support department costs to production departments, which of the following methods is the most difficult but the most accurate? a. Reciprocal services method b. Step-down method c. Direct method d. Sequential method considers all inter-support- 3. In the context of allocating support department costs to production departments, the department services and is the most difficult to implement when a large number of departments is involved.arrow_forwardS1 - After service department costs are allocated to other departments, costs are re-circulated back to that service department, under the step method. S2 - When using the direct method of allocating service department costs, it is necessary that the cost of the service department which serves the greatest number of departments is allocated first. a. Only S1 is true b. Only S2 is true c. Both S1 & S2 are true d. Both S1 & S2 are falsearrow_forwardWhich of the following describe the reciprocal method for cost allocation: Select one: O a. Simultaneously allocates costs among operation departments, and then to other operation departments then to support departments O b. Simultaneously allocates costs among support departments, and then to other support department then to operating departments O. Simultaneously allocates costs among operation departments, and then to support department O d. Simultaneously allocates costs among support departments, and then to operating departmentarrow_forward
- Allocate the two support departments’ costs to the two operating departments using the Direct methodarrow_forwardWhich method of allocating support department costs is completed by taking the service flows to production departments only and determining each production department's share of that service? Question options: a) average method. b) step method. c) direct method. d) reciprocal method.arrow_forwardWhich of the following is TRUE regarding the total service department cost allocated by the three recognized allocation method? O The reciprocal method results in the highest amount of total cost being allocated to operating departments as it recognizes all possible interactions among the support departments prior to allocation. O The answer will depend on how many service departments are involved in supporting operating departments. O The step method results in more total cost being allocated to operating departments than the direct method as it recognizes at least some portion of interactions among the support departments. O There is no difference among the three methods in terms of total cost being allocated to operating departments. bloutarrow_forward
- 1. Compare and explain differences in the support-department costs allocated to eachproduction department. 2. What approaches might be used to decide the sequence in which to allocate supportdepartments when using the step-down method?arrow_forwardPart 1: Allocate the costs of the 3 service departments using the direct method. Part 2: Allocate the costs of the 3 service departments using the step method, with the order determined by the greater percentage usage. Part 3: Allocate the costs of the 3 service departments using the reciprical method. Part 4:What is one strength and one drawback of each of the methods?arrow_forwardAllocate the two support departments’ costs to the two operating departments using the Step-down method (allocate AS first)arrow_forward
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What is Cost Allocation? Definition & Process; Author: FloQast;https://www.youtube.com/watch?v=hLhvvHvZ3JM;License: Standard Youtube License