Answered: Allocate the support departments'…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

I- Books, an online book retailer, has two operating departments—corporate sales and consumer sales—and two support

departments—human resources and information systems. Each sales department conducts merchandising and marketing operations independently. I−books uses number of employees to allocate human resources costs and processing time to allocate information systems costs. The following data are available for September 2017:

Read the requirements2.

Requirement 1. Allocate the support departments' costs to the operating departments using the direct method. (Do not round intermediary calculations. Only round the amount you input in the cell to the nearest dollar. Use parentheses or a minus sign when decreasing departments by allocating costs. Enter a "0" for any zero balances. Abbreviations used: HR = Human resources; Info. = Information.)

	Support Departments	Operating Departments
	HR	Info. Systems	Corporate	Consumer	Total
Costs incurred
Allocation of HR costs
Allocation of Info. System costs
Total budgeted costs of operating departments

Requirement 2. Rank the support departments based on the percentage of their services provided to other support departments. Use this ranking to allocate the support departments' costs to the operating departments based on the step-down method.

First, rank, from highest to lowest, the support departments based on the percentage of their services provided to other support departments. (Round percentages to five decimal places.)

Support department	Percentage
(1)		%
(2)		%

Next, use this ranking to allocate the support departments' costs to the operating departments based on the step-down method. (Do not round intermediary calculations and round your final answers to the nearest whole dollar. Use parentheses or a minus sign when decreasing departments by allocating costs. Enter a "0" for any zero balances.)

	Support Departments	Operating Departments
	HR	Info. Systems	Corporate	Consumer	Total
Costs incurred
(3)

(4)
Total budgeted costs of operating departments

Requirement 3. How could you have ranked the support departments differently?

You can rank I−books'support departments using an alternative approach—ranking based on the (5)

Using the step-down method, this approach would result in the following sequence:

	Step 1:	(6)
	Step 2:	(7)

1: Data Table

	Support Departments	Operating Departments
	Human Resources	Information Systems	Corporate Sales	Consumer Sales
Budgeted costs incurred before any interdepartment cost allocations	$40,000	$260,000	$910,000	$500,000
Support work supplied by human resources department
Budgeted number of employees	—	20	44	36
Support work supplied by information systems department
Budgeted processing time (in minutes)	240	—	2,000	1,760

2: Requirements

1.	Allocate the support departments' costs to the operating departments using the direct method.
2.	Rank the support departments based on the percentage of their services provided to other support departments. Use this ranking to allocate the support departments' costs to the operating departments based on the step-down method.
3.	How could you have ranked the support departments differently?

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