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? Direct allocation data Support DepartmentsOperating Departments HRInfo. SystemsCorporateConsumerTotalCosts incurred$90,000$227,000$994,000$484,000$1,795,000Allocation of HR costs(90,000) 49,50040,500 Allocation of Info. Systems costs (227,000)158,90068,100 Total budgeted costs of operating departments$0$0$1,202,400$592,600$1,795,000 ABCDE1 SUPPORT DEPARTMENTSOPERATING DEPARTMENTS2 Human ResourcesInformation SystemsCorporate SalesConsumer Sales3Budgeted costs incurred before any interdepartment cost allocations$90,000$227,000$994,000$484,0004Support work supplied by human resources department 5Budgeted number of employees02044366Support work supplied by information systems department 7Budgeted processing time (in minutes)40002,5201,080 Step-down allocation dataSupport DepartmentsInfo. Systems Corporate ConsumerOperating DepartmentsHR$ 90,000 S(90,000)Total227,000 $ 994,000 $ 484,000 $ 1,795,00018,000Costs incurredAllocation of HR costs39,60032,400245,000Allocation of Info. Systems costs(245,000)171,50073,500O$ 1,205,100 S589,900 $ 1,795,000Total budgeted costs of operating departments"Proportions for services provided to other support departments: human resources (HR), 0.20000; information sytems (IS),0.10000. O- books, an online book retailer, has two operating departments-corporate sales andconsumer sales-and two support departments-human resources and informationThe following data are avalable for September 2020:systems.O (Click the icon to view additional information.)E (Click the icon to view the data.)(Click the icon to view the direct allocation data.)(Click the icon to view the step-down allocation data.)Read the cesuirementsRequirement 1. Describe the key features of the reciprocal method.The reciprocal allocation method explicitly includes the mutual services providedinto the support department cost allocations.Interdepartmental relationshipsfully incorporated

SOLUTION- RECIPROCAL METHOD USES SIMULTANEOUS EQUATIONS TO ALLOCATE THE COSTS INCURRED BY THE…

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? Direct allocation data Support Departments Operating Departments HR Info. Systems Corporate Consumer Total Costs incurred $90,000 $227,000 $994,000 $484,000 $1,795,000 Allocation of HR costs (90,000) 49,500 40,500 Allocation of Info. Systems costs (227,000) 158,900 68,100 Total budgeted costs of operating departments $0 $0 $1,202,400 $592,600 $1,795,000 A B C D E 1 SUPPORT DEPARTMENTS OPERATING DEPARTMENTS 2 Human Resources Information Systems Corporate Sales Consumer Sales 3 Budgeted costs incurred before any interdepartment cost allocations $90,000 $227,000 $994,000 $484,000 4 Support work supplied by human resources department 5 Budgeted number of employees 0 20 44 36 6 Support work supplied by information systems department 7 Budgeted processing time (in minutes) 400 0 2,5

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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Question

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?

Direct allocation data

	Support Departments	Operating Departments
	HR	Info. Systems	Corporate	Consumer	Total
Costs incurred	$90,000	$227,000	$994,000	$484,000	$1,795,000
Allocation of HR costs	(90,000)		49,500	40,500
Allocation of Info. Systems costs		(227,000)	158,900	68,100
Total budgeted costs of operating departments	$0	$0	$1,202,400	$592,600	$1,795,000

	A	B	C	D	E
1		SUPPORT DEPARTMENTS	OPERATING DEPARTMENTS
2		Human Resources	Information Systems	Corporate Sales	Consumer Sales
3	Budgeted costs incurred before any interdepartment cost allocations	$90,000	$227,000	$994,000	$484,000
4	Support work supplied by human resources department
5	Budgeted number of employees	0	20	44	36
6	Support work supplied by information systems department
7	Budgeted processing time (in minutes)	400	0	2,520	1,080

Step-down allocation data
Support Departments
Info. Systems Corporate Consumer
Operating Departments
HR
$ 90,000 S
(90,000)
Total
227,000 $ 994,000 $ 484,000 $ 1,795,000
18,000
Costs incurred
Allocation of HR costs
39,600
32,400
245,000
Allocation of Info. Systems costs
(245,000)
171,500
73,500
O$ 1,205,100 S
589,900 $ 1,795,000
Total budgeted costs of operating departments
"Proportions for services provided to other support departments: human resources (HR), 0.20000; information sytems (IS),
0.10000.

O- books, an online book retailer, has two operating departments-corporate sales and
consumer sales-and two support departments-human resources and information
The following data are avalable for September 2020:
systems.
O (Click the icon to view additional information.)
E (Click the icon to view the data.)
(Click the icon to view the direct allocation data.)
(Click the icon to view the step-down allocation data.)
Read the cesuirements
Requirement 1. Describe the key features of the reciprocal method.
The reciprocal allocation method explicitly includes the mutual services provided
into the support department cost allocations.
Interdepartmental relationships
fully incorporated

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