7-34 Departmental Cost Allocation; Outsourcing Levy Company produces two software produci (WebX and WebY) in two separate departments (A and B). These products are highly regarde network maintenance programs. WebX is used for small networks and WebY is used for lare. networks. Levy is known for the quality of its products and its ability to meet dates promised fo software upgrades. Department A produces WebX, and department B produces WebY. The production depart- ments are supported by two support departments, systems design and programming services The source and use of the support department time are summarized as follows: To Total From Design Programming Department A Department B Labor-Hours Design Programming 5,000 1,000 200 9,000 15,000 1,000 200 600 The costs in the two service departments are as follows: Design Programming Labor and materials (all variable) Depreciation and other fixed costs $30,000 40,000 $70,000 $25,000 25,000 $50,000 Total Required 1. What are the costs allocated to the two production departments from the two service departments using (a) the direct method, (b) the step method (design department goes first), and (c) the reciprocal method? 2. The company is considering outsourcing programming services to DDB Services, Inc., for $45 per hour. Should Levy do this?
7-34 Departmental Cost Allocation; Outsourcing Levy Company produces two software produci (WebX and WebY) in two separate departments (A and B). These products are highly regarde network maintenance programs. WebX is used for small networks and WebY is used for lare. networks. Levy is known for the quality of its products and its ability to meet dates promised fo software upgrades. Department A produces WebX, and department B produces WebY. The production depart- ments are supported by two support departments, systems design and programming services The source and use of the support department time are summarized as follows: To Total From Design Programming Department A Department B Labor-Hours Design Programming 5,000 1,000 200 9,000 15,000 1,000 200 600 The costs in the two service departments are as follows: Design Programming Labor and materials (all variable) Depreciation and other fixed costs $30,000 40,000 $70,000 $25,000 25,000 $50,000 Total Required 1. What are the costs allocated to the two production departments from the two service departments using (a) the direct method, (b) the step method (design department goes first), and (c) the reciprocal method? 2. The company is considering outsourcing programming services to DDB Services, Inc., for $45 per hour. Should Levy do this?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text:7-34 Departmental Cost Allocation; Outsourcing Levy Company produces two software produci
(WebX and WebY) in two separate departments (A and B). These products are highly regarde
network maintenance programs. WebX is used for small networks and WebY is used for les
networks. Levy is known for the quality of its products and its ability to meet dates promised fo
software upgrades.
Department A produces WebX, and department B produces WebY. The production depart-
ments are supported by two support departments, systems design and programming services
The source and use of the support department time are summarized as follows:
To
Total
Labor-Hours
From
Design
Programming
Department A
Department B
Design
Programming
5,000
1,000
200
9,000
15,000
1,000
200
600
The costs in the two service departments are as follows:
Design
Programming
Labor and materials (all variable)
Depreciation and other fixed costs
$30,000
40,000
$70,000
$25,000
25,000
Total
$50,000
Required
1. What are the costs allocated to the two production departments from the two service departments
using (a) the direct method, (b) the step method (design department goes first), and (c) the reciprocal
method?
2. The company is considering outsourcing programming services to DDB Services, Inc., for $45 per
hour. Should Levy do this?
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