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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Chapter 15, Problem 15.22E
Reciprocal cost allocation (continuation of 15-21). Consider E-books again. The controller of E-books reads a widely used textbook that states that “the reciprocal method is conceptually the most defensible” He seeks your assistance.
- 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?
15-21 Direct and step-down allocation. E-books, an online book retailer, has two operating departments—corporate sales and consumer sales—and two support departments—human resources and information systems. Each sales department conducts merchandising and marketing operations independently. E-books uses number of employees to allocate human resources costs and processing time to allocate information systems costs. The following data are available for September 2017:
- 1. Allocate the support departments’ costs to the operating departments using the direct method.
Required
- 2. Rank the support departments based on the percentage of their services provided to other support departments. Use this ranking to allocate the support departments’ costs to the operating departments based on the step-down method.
- 3. How could you have ranked the support departments differently?
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Students have asked these similar questions
Use the following data to prepare a model that allocates the support departments using the three
methods (direct, sequential, and reciprocal). Pay attention to the following instructions:
1. You should design your model to include an input section, an output section, and user
instructions.
2. The output section should have nothing but references and formulas in it.
3. For the sequential method, allocate the support department with the highest cost first.
4. For the reciprocal method, either calculate the reciprocal amounts using a formula in Excel or
use iterative equations to calculate the amounts. Do NOT type the amounts in.
General Factory
$325,000
Support Departments
Receiving
$160,000
Producing Departments
Assembly
$45,000
Finishing
$72,000
Departments
Direct Overhead
Square Footage
# of Receiving Orders
3,400
5,300
4,700
2,050
300
1,650
3)
Data Master is a computer software consulting company. Its three major functional areas
are computer programming, information systems consulting, and software training. Cynthia
Moore, 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, Moore is considering three different methods of allocating overhead costs: the direct
method, the step method, and the reciprocal method. Moore assembled the following data on
overhead from its two service departments, the Information Systems Department and the
Facilities Department.
Budgeted
Overhead
Service Departments
User Departments
Info
Systems
Facilities Computer Consulting Training
Program
$ 50,000 $ 25,000 $75,000 $110,000 $85,000 $ 345,000
Info
Systems
(hours)
Facilities 200,000
(Square
feet)
Direct Cost
Info System
Facilities
Total
400
1,100
400,000
600
900
Computer
Program
the
Information…
Allocate the two support departments’ costs to the two operating departments using the reciprocal method. Use (a) linear equations and (b) repeated iterations.
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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