Support department cost allocation
Part A
1.Explain the differences between the operating and support departments.
2. Explain the direct, step-town and reciprocal methods of support department cost allocation.Compare the three methods in terms of recognition of interactions among support departments,complexity, and accuracy.
Part B
Statewide Bank has two support departments: the Human Resources department and the Computing department. The bank also has two operating departments that service customersdirectly: the Deposits department and the Loans department. The usage of the two support departments' output in the year just ended was as follows:
|
|
Provider of support
|
|
User of support
|
Human Resources
|
Computing
|
|
Human ResourcesComputing
Deposits
Loans
|
-
20%
50%
30%
|
20%
-
60%
20%
|
The budgeted costs in the two support departments for the year just ended were:
Human Resources $360 000
Computing 600 000
Required:
1. Use the direct method to allocate the budgeted costs of the Human Resources and Computing departments to the Deposits and Loans departments
2. Use the step-down method to allocate the budgeted costs of the Human Resources and Computing departments to the Deposits and Loans departments. Rank the departmentsbased on their budgeted costs.
3. Use the reciprocal method to allocate the budgeted costs of the Human Resources andComputing departments to the Deposits and Loans departments.