Question

Question 4 Management at Thomason Media has decided to allocate the costs of the paper's two support departments (administration and human resources) to the two revenue-generating departments (advertising and circulation). Administration costs are to be allocated on the basis of Rands of assets employed; human resources costs are to be allocated on the basis of number of employees. The following costs and allocation bases are available: Department Direct Costs Number of Employees Administration Human resources Advertising Circulation Totals R781 500 R492 700 R957 800 R1 352 600 R3 584 600 Rands of Assets Employed R387 100 R291 700 R762 400 R1 870 300 R3 311 500 Required: 4.1 Using the direct method allocate the support department costs to the revenue- generating departments. 4.2 Using the sequential method, allocate the support department costs to the revenue- generating departments. 4.3 Using the reciprocal method allocate the support department costs to the revenue- generating departments.

Answer 1

Answer is given below

Currency is Rand 4.1 Direct method Support Departments Administration Human Resource 781,500 492,700 Revenue Departments Advertising Circulation 957,800 1,352,600 Total 2,310,400 Departmental costs before allocations Allocation Administration (7624:18703) Human resource (12:25) Total cost allocated -781,500 -492,700 0 226,314 159,795 1,343,908 555,186 332,905 2,240,692 781,500 492,700 3,584,600 4.2 Step down method Support Departments Revenue Departments Administration Human Resource Advertising Circulation Total 781,500 492,700 957,800 1,352,600 2,310,400 Departmental costs before allocations Allocation Human resource (Ratio of employees) Administration (7624:18703) Total cost allocated -492,700 104,830 -886,330 125,796 256,671 1,340,267 262,074 629,659 2,244,333 387,870 886,330 3,584,600 Human resource is allocated first since it gives highest services to administration service department Reciprocal method Support Departments Revenue Departments Circulation Total Administration Human Resource 781,500 492,700 Advertising 957,800 1,352,600 2,310,400 Departmental costs before allocations Allocation Administration Human Resource Total cost allocated -905,548 124,048 0 90,326 -583,026 0 236,079 148,858 1,342,737 579,143 310,120 2,241,863 815,222 458,978 3,584,600 working notes: Support Departments Revenue Departments Administration Human Resource Advertising Circulation Total 291,700 Administration Human Resource 762,400 12 1,870,300 25 2,924,400 10 Administration Human Resource Advertising Circulation Total 9.97% Administration Human Resource 21.28% 26.07% 25.53% 63.95% 53.19% 100.00% 100.00% Simultaneous Equation method A=781,500+21.28%H H=492,700 +9.97%A A=Administration H=Human resource Solving above equation A= 781,500 +21.28% (492,700+9.97% A) A= 781,500 + 104,847 +0.0212 A0.9788=886,347 A=886,347/0.9788 Total Cost A= 905,548 H=583,026