Best Books, an online book retailer, has two operating departments—corporate sales and consumer sales—and two support departments—human resources and information systems. The following data are available for September 2017: Read the requirements5. Requirement 1. Describe the key features of the reciprocal method. The reciprocal allocation method explicitly includes the mutual services provided (1) . Interdepartmental relationships (2) fully incorporated into the support department cost allocations. Requirement 2. Allocate the support departments' costs (human resources and information systems) to the two operating departments using the reciprocal method. Before we can allocate the support departments' costs to the two operating departments using the reciprocal method, let's first determine the linear equations for each support department. Then off-line solve for HR and IS (Information Systems), so that you may complete the allocation of the support��� departments' costs. (Abbreviations used: HR = human resources; IS = information system.) HR= (3) + (4) (5) IS= (6) + (7) (8) Now allocate the support departments' costs (human resources and information systems) to the two operating departments using the reciprocal method. Support Deparments Operating Departments HR Info. Systems Corporate Consumer Total Costs incurred Allocation of HR costs Allocation of Info. Systems costs Total budgeted costs of operating departments This time, use repeated iterations. Use parentheses or a minus sign when decreasing departments by allocating costs. Support Departments Operating Departments Reciprocal Method HR Info. Systems Corporate Consumer Total Budgeted overhead costs before interdepartment cost allocations First allocation of HR costs First allocation of Info. Systems costs Second allocation of HR costs Second allocation of Info. Systems costs Third allocation of HR costs Third allocation of Info. Systems costs Fourth allocation of HR costs Fourth allocation of Info. Systems costs Total budgeted overhead of operating departments Requirement 3. In the case presented in this exercise, which method step-down, or reciprocal Recommendation: The (9) would you recommend? Why? her two methods when there are mutual relationships among support departments. Why would you recommend this method? A. It is easy to compute and understand, and being precise is not necessary. B. It fully incorporates interdepartmental relationships into the support departments cost allocation. C. It ranks support departments in the order that the allocation is to proceed and partially recognizes the mutual services provided. 1: More Info Each sales department conducts merchandising and marketing operations independently. Best Books uses the number of employees to allocate human resources costs and processing time to allocate information systems costs. The controller of Best Books reads a widely used textbook that states that "the reciprocal method is conceptually the most defensible." He seeks your assistance. 2: Data Table Support Departments Operating Departments Human Resources Information Systems Corporate Sales Consumer Sales Budgeted costs incurred before any interdepartment cost allocations $80,000 $229,000 $990,000 $482,000 Support work supplied by human resources department Budgeted number of employees — 20 48 32 Support work supplied by information systems department Budgeted processing time (in minutes) 400 — 2,520 1,080 3: Direct allocation data Support Departments Operating Departments HR Info. Systems Corporate Consumer Total Costs incurred $80,000 $229,000 $990,000 $482,000 $1,781,000 Allocation of HR costs (80,000) 48,000 32,000 Allocation of Info. Systems costs (229,000) 160,300 68,700 Total budgeted costs of operating departments $0 $0 $1,198,300 $582,700 $1,781,000 4: Step-down allocation data Support Departments Operating Departments HR Info. Systems Corporate Consumer Total Costs incurred $80,000 $229,000 $990,000 $482,000 $1,781,000 Allocation of HR costs (80,000) 16,000 38,400 25,600 $0 245,000 Allocation of Info. Systems costs (245,000) 171,500 73,500 Total budgeted costs of operating departments $0 $1,199,900 $581,100 $1,781,000 *Proportions for services provided to other support departments: human resources (HR), 0.20000; information systems (IS), 0.10000. 5: Requirements 1. Describe the key features of the reciprocal method. 2. Allocate the support departments' costs (human resources and information systems) to the two operating departments using the reciprocal method. Use (a) linear equations and (b) repeated iterations. 3. In the case presented in this exercise, which method (direct, step-down, or reciprocal) would you recommend? Why?
Best Books, an online book retailer, has two operating departments—corporate sales and consumer sales—and two support departments—human resources and information systems. The following data are available for September 2017: Read the requirements5. Requirement 1. Describe the key features of the reciprocal method. The reciprocal allocation method explicitly includes the mutual services provided (1) . Interdepartmental relationships (2) fully incorporated into the support department cost allocations. Requirement 2. Allocate the support departments' costs (human resources and information systems) to the two operating departments using the reciprocal method. Before we can allocate the support departments' costs to the two operating departments using the reciprocal method, let's first determine the linear equations for each support department. Then off-line solve for HR and IS (Information Systems), so that you may complete the allocation of the support��� departments' costs. (Abbreviations used: HR = human resources; IS = information system.) HR= (3) + (4) (5) IS= (6) + (7) (8) Now allocate the support departments' costs (human resources and information systems) to the two operating departments using the reciprocal method. Support Deparments Operating Departments HR Info. Systems Corporate Consumer Total Costs incurred Allocation of HR costs Allocation of Info. Systems costs Total budgeted costs of operating departments This time, use repeated iterations. Use parentheses or a minus sign when decreasing departments by allocating costs. Support Departments Operating Departments Reciprocal Method HR Info. Systems Corporate Consumer Total Budgeted overhead costs before interdepartment cost allocations First allocation of HR costs First allocation of Info. Systems costs Second allocation of HR costs Second allocation of Info. Systems costs Third allocation of HR costs Third allocation of Info. Systems costs Fourth allocation of HR costs Fourth allocation of Info. Systems costs Total budgeted overhead of operating departments Requirement 3. In the case presented in this exercise, which method step-down, or reciprocal Recommendation: The (9) would you recommend? Why? her two methods when there are mutual relationships among support departments. Why would you recommend this method? A. It is easy to compute and understand, and being precise is not necessary. B. It fully incorporates interdepartmental relationships into the support departments cost allocation. C. It ranks support departments in the order that the allocation is to proceed and partially recognizes the mutual services provided. 1: More Info Each sales department conducts merchandising and marketing operations independently. Best Books uses the number of employees to allocate human resources costs and processing time to allocate information systems costs. The controller of Best Books reads a widely used textbook that states that "the reciprocal method is conceptually the most defensible." He seeks your assistance. 2: Data Table Support Departments Operating Departments Human Resources Information Systems Corporate Sales Consumer Sales Budgeted costs incurred before any interdepartment cost allocations $80,000 $229,000 $990,000 $482,000 Support work supplied by human resources department Budgeted number of employees — 20 48 32 Support work supplied by information systems department Budgeted processing time (in minutes) 400 — 2,520 1,080 3: Direct allocation data Support Departments Operating Departments HR Info. Systems Corporate Consumer Total Costs incurred $80,000 $229,000 $990,000 $482,000 $1,781,000 Allocation of HR costs (80,000) 48,000 32,000 Allocation of Info. Systems costs (229,000) 160,300 68,700 Total budgeted costs of operating departments $0 $0 $1,198,300 $582,700 $1,781,000 4: Step-down allocation data Support Departments Operating Departments HR Info. Systems Corporate Consumer Total Costs incurred $80,000 $229,000 $990,000 $482,000 $1,781,000 Allocation of HR costs (80,000) 16,000 38,400 25,600 $0 245,000 Allocation of Info. Systems costs (245,000) 171,500 73,500 Total budgeted costs of operating departments $0 $1,199,900 $581,100 $1,781,000 *Proportions for services provided to other support departments: human resources (HR), 0.20000; information systems (IS), 0.10000. 5: Requirements 1. Describe the key features of the reciprocal method. 2. Allocate the support departments' costs (human resources and information systems) to the two operating departments using the reciprocal method. Use (a) linear equations and (b) repeated iterations. 3. In the case presented in this exercise, which method (direct, step-down, or reciprocal) would you recommend? Why?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Best Books, an online book retailer, has two operating departments—corporate sales and consumer sales—and two support departments—human resources and information systems.
The following data are available for September 2017:
Read the requirements5.
Requirement 1. Describe the key features of the reciprocal method.
The reciprocal allocation method explicitly includes the mutual services provided (1) .
Interdepartmental relationships (2)
Interdepartmental relationships (2)
fully incorporated into the support department cost allocations.
Requirement 2. Allocate the support departments' costs (human resources and information systems) to the two operating departments using the reciprocal method.
Before we can allocate the support departments' costs to the two operating departments using the reciprocal method, let's first determine the linear equations for each support department. Then off-line solve for HR and IS (Information Systems), so that you may complete the allocation of the support��� departments' costs. (Abbreviations used: HR = human resources; IS = information system.)
HR=
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(3)
|
+
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(4)
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(5)
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|
|
|
|
|
IS=
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(6)
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+
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(7)
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(8)
|
Now allocate the support departments' costs (human resources and information systems) to the two operating departments using the reciprocal method.
|
Support Deparments
|
Operating Departments
|
|
||
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HR
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Info. Systems
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Corporate
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Consumer
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Total
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Costs incurred
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|
|
|
|
|
Allocation of HR costs
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|
|
|
|
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Allocation of Info. Systems costs
|
|
|
|
|
|
Total budgeted costs of operating departments
|
|
|
|
|
|
This time, use repeated iterations. Use parentheses or a minus sign when decreasing departments by allocating costs.
|
Support Departments
|
Operating Departments
|
|||
Reciprocal Method
|
HR
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Info. Systems
|
Corporate
|
Consumer
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Total
|
Budgeted
|
|||||
before interdepartment cost allocations
|
|
|
|
|
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First allocation of HR costs
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|
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|
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||||
First allocation of Info. Systems costs
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|
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Second allocation of HR costs
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|
|
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Second allocation of Info. Systems costs
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|
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Third allocation of HR costs
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|
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Third allocation of Info. Systems costs
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Fourth allocation of HR costs
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Fourth allocation of Info. Systems costs
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Total budgeted overhead of operating departments
|
|
|
|
|
|
Requirement 3. In the case presented in this exercise, which method step-down, or reciprocal
Recommendation: The (9)
would you recommend? Why?
her two methods when there are mutual relationships among support departments.
Why would you recommend this method?
A. It is easy to compute and understand, and being precise is not necessary.
1: More Info
Each sales department conducts merchandising and marketing operations independently.
Best Books uses the number of employees to allocate human resources costs and processing time to allocate information systems costs. The controller of Best Books reads a widely used textbook that states that "the reciprocal method is conceptually the most defensible." He seeks your assistance.
2: Data Table
|
Support Departments
|
Operating Departments
|
||
|
Human Resources
|
Information Systems
|
Corporate Sales
|
Consumer Sales
|
Budgeted costs incurred before any interdepartment cost allocations
|
$80,000
|
$229,000
|
$990,000
|
$482,000
|
Support work supplied by human resources department
|
||||
Budgeted number of employees
|
—
|
20
|
48
|
32
|
Support work supplied by information systems department
|
||||
Budgeted processing time (in minutes)
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400
|
—
|
2,520
|
1,080
|
3: Direct allocation data
|
Support Departments
|
Operating Departments
|
|
||
|
HR
|
Info. Systems
|
Corporate
|
Consumer
|
Total
|
Costs incurred
|
$80,000
|
$229,000
|
$990,000
|
$482,000
|
$1,781,000
|
Allocation of HR costs
|
(80,000)
|
|
48,000
|
32,000
|
|
Allocation of Info. Systems costs
|
|
(229,000)
|
160,300
|
68,700
|
|
Total budgeted costs of operating departments
|
$0
|
$0
|
$1,198,300
|
$582,700
|
$1,781,000
|
4: Step-down allocation data
|
Support Departments
|
Operating Departments
|
|
||
|
HR
|
Info. Systems
|
Corporate
|
Consumer
|
Total
|
Costs incurred
|
$80,000
|
$229,000
|
$990,000
|
$482,000
|
$1,781,000
|
Allocation of HR costs
|
(80,000)
|
16,000
|
38,400
|
25,600
|
|
$0
|
245,000
|
||||
Allocation of Info. Systems costs
|
|
(245,000)
|
171,500
|
73,500
|
|
Total budgeted costs of operating departments
|
|
$0
|
$1,199,900
|
$581,100
|
$1,781,000
|
*Proportions for services provided to other support departments: human resources (HR), 0.20000; information systems (IS), 0.10000.
5: Requirements
1.
|
Describe the key features of the reciprocal method.
|
2.
|
Allocate the support departments' costs (human resources and information systems) to the two operating departments using the reciprocal method. Use (a) linear equations and (b) repeated iterations.
|
3.
|
In the case presented in this exercise, which method (direct, step-down, or reciprocal) would you recommend? Why?
|
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