A company has two operating departments: Retail Shops and Online Shop. Each of the operating departments uses the services of the company's two service departments: Admin and HR. Additionally, the Admin and HR departments use the services of each other. Data concerning the past year are as follows: Retail Online Admin HR Total Shops Shop Budgeted overhead costs before any interdepartment cost allocations Support work furnished: For Admin department $250,000 $190,000 S380,000 | S470,000 S1,290,000 Number of Admin tasks 90 290 120 For HR department No. of employees 21 62 17 Required (a) Compute the total overhead costs of the operating departments (Retail Shops and Online Shop) after the service department costs of Admin and HR have been allocated using (i) the direct method. (ii) the step-down method. (using the sequence of cost of service provided) (iii) the reciprocal method. (b) Which method would you recommend that the company use to allocate service department costs? Why? You should consider different perspectives.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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A company has two operating departments: Retail Shops and Online Shop. Each of the
operating departments uses the services of the company's two service departments: Admin
and HR. Additionally, the Admin and HR departments use the services of each other. Data
concerning the past year are as follows:
Retail
Online
Admin
HR
Total
Shops
Shop
Budgeted overhead costs before any
interdepartment cost allocations
Support work furnished:
For Admin department
$250,000 $190,000 $380,000 $470,000 S1,290,000
Number of Admin tasks
90
290
120
For HR department
No. of employees
21
62
17
Required
(a) Compute the total overhead costs of the operating departments (Retail Shops and Online
Shop) after the service department costs of Admin and HR have been allocated using
(i) the direct method.
(ii) the step-down method. (using the sequence of cost of service provided)
(iii) the reciprocal method.
(b) Which method would you recommend that the company use to allocate service
department costs? Why? You should consider different perspectives.
Transcribed Image Text:A company has two operating departments: Retail Shops and Online Shop. Each of the operating departments uses the services of the company's two service departments: Admin and HR. Additionally, the Admin and HR departments use the services of each other. Data concerning the past year are as follows: Retail Online Admin HR Total Shops Shop Budgeted overhead costs before any interdepartment cost allocations Support work furnished: For Admin department $250,000 $190,000 $380,000 $470,000 S1,290,000 Number of Admin tasks 90 290 120 For HR department No. of employees 21 62 17 Required (a) Compute the total overhead costs of the operating departments (Retail Shops and Online Shop) after the service department costs of Admin and HR have been allocated using (i) the direct method. (ii) the step-down method. (using the sequence of cost of service provided) (iii) the reciprocal method. (b) Which method would you recommend that the company use to allocate service department costs? Why? You should consider different perspectives.
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