Departmental Cost Allocation; Outsourcing Marin Company produces two software products(Cloud-X and Cloud-Y) in two separate departments (A and B). These products are highly regardednetwork maintenance programs. Cloud-X is used for small networks and Cloud-Y is used for largenetworks. Marin is known for the quality of its products and its ability to meet dates promised forsoftware upgrades.Department A produces Cloud-X, and department B produces Cloud-Y. The production departments are supported by two support departments, systems design and programming services. Thesources and uses of the support department time are summarized as follows:FromToTotalDesign Programming Department A Department B Labor HoursDesign — 5,000 1,000 9,000 15,000Programming 400 — 600 1,000 2,000The costs in the two service departments are as follows:Design ProgrammingLabor and materials (all variable) $50,000 $36,000Depreciation and other fixed costs 40,000 4,000Total $90,000 $40,000Required1. Determine the total support costs allocated to each of the producing departments using (a) the directmethod, (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 $25 per hour.Should Marin do this?
Departmental Cost Allocation; Outsourcing Marin Company produces two software products
(Cloud-X and Cloud-Y) in two separate departments (A and B). These products are highly regarded
network maintenance programs. Cloud-X is used for small networks and Cloud-Y is used for large
networks. Marin is known for the quality of its products and its ability to meet dates promised for
software upgrades.
Department A produces Cloud-X, and department B produces Cloud-Y. The production departments are supported by two support departments, systems design and programming services. The
sources and uses of the support department time are summarized as follows:
From
To
Total
Design Programming Department A Department B Labor Hours
Design — 5,000 1,000 9,000 15,000
Programming 400 — 600 1,000 2,000
The costs in the two service departments are as follows:
Design Programming
Labor and materials (all variable) $50,000 $36,000
Depreciation and other fixed costs 40,000 4,000
Total $90,000 $40,000
Required
1. Determine the total support costs allocated to each of the producing 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 $25 per hour.
Should Marin do this?
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