Question

Question Help Tech Books, an online book retailer, has two operating departments corporate sales and consumer sales and to support departments human resources and conducts merchandising and marketing operations independently. Tech Books uses number of employees to locate human resources cours and processing to c data are available for September 2017 Click the icon to view the data) on Ech t o n nect the Read the Requirement 1. Allocate the support department costs to the operating departments using the direct ethod (Do not round m ary calcations Only found remount you input in the Use parentheses or a minun when decreasing departments by locating costs. E ra o for andre balances Abortions SEHR Human resource bowion) other Support Departments Operating Departments Corporate Consumer Info Systems Costs incurred Allocation of HR costs Allocation of info System costs Total budgeted costs of operating departments

Answer 1

1.Direct method allocates cost of support departments to operating departments. Inter allocation of cost among service department is not allowed.

	Support Departments		Operating departments
	HR	Info systems	Corporate	Consumer	Total
Costs incurred	80,000	300,000	970,000	485,000	1,835,000
Allocation of HR costs [50/80 and 30/80]*80,000	-80,000		50,000	30,000	0
Allocation of info system costs [2000/3560 and 1560/3560]*300,000		-300,000	168,539	131,461	0
	0	0	1,188,539	646,461	1,835,000

2. Step down approach allocates cost of department based on highest ranking of services to other services department. In this approach, inter allocation is possible.

Ranking on percentage of services rendered to other departments.

HR to information systems = 20/(20+30+50) =20%

Hence HR provides 20% of 80,000 = $ 16,000 services to information systems

Information systems to HR = 440/(3560+440) = 11%

Hence, Information systems provides 11% of 300,000 = $ 33000 to HR

As the percentage is greater from HR to information systems, the first allocation shall be done similarly.

	Support Departments		Operating departments
	HR	Info systems	Corporate	Consumer	Total
Costs incurred	80,000	300,000	970,000	485,000	1,835,000
Allocation of HR costs 20/100, 50/100 and 30/100	(80,000)	16,000	40,000	24,000	-
	-	316,000	1,010,000	509,000	1,835,000
Allocation of info system costs 2000/3560 and 1560/3560		(316,000)	177,528	138,472	-
	-	-	1,187,528	647,472	1,835,000

3. The alternative approach would be reverse of steps in requirement 2. Information systems is ranked first alternatively based on higher dollar value than that of HR.

a. Allocate information systems $33000 to HR First

b. Then allocate HR’s cost of $ 16000 to information department.

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