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?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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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?
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