The controller of E-books reads a widely used textbook that states that “the reciprocal method is conceptually the most defensible.” He seeks your assistance. 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. Direct and step-down allocation. E-books, an online book retailer, has two operating departments-corporate sales and consumer sales-and two support departments-human resources and informationsystems. Each sales department conducts merchandising and marketing operations independently. E-booksuses number of employees to allocate human resources costs and processing time to allocate informationsystems costs. The following data are available for September 2017:Page LayoutDataHomeInsertFormulasReviewViewвSUPPORTIDOPERATINGDEPARTMENTSDEPARTMENTSCorporate ConsumerSalesSalesHumanInformationResources Systems3 Budgeted costs incurred before anyinterdepartment cost allocationsSupport work supplied by human5 resources departmentBudgeted number of employeesSupport work supplied by information7 systems departmentBudgeted processing time (in minutes)$72,700$234,400$998,270 $489,86042142288.3201,9201,600

Answered: Direct and step-down allocation.…

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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The controller of E-books reads a widely used textbook that states that “the reciprocal method is conceptually the most defensible.” He seeks your assistance. 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.

Direct and step-down allocation. E-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. E-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:
Page Layout
Data
Home
Insert
Formulas
Review
View
в
SUPPORT
ID
OPERATING
DEPARTMENTS
DEPARTMENTS
Corporate Consumer
Sales
Sales
Human
Information
Resources Systems
3 Budgeted costs incurred before any
interdepartment cost allocations
Support work supplied by human
5 resources department
Budgeted number of employees
Support work supplied by information
7 systems department
Budgeted processing time (in minutes)
$72,700
$234,400
$998,270 $489,860
4
21
42
28
8.
320
1,920
1,600

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