Farmer’s Market United (FMU) is an umbrella organization for all individuals who are go-getters in home-grown produce, homemade jams/jellies, artisan breads, and other hand-crafted items to be sold on local street corners. It represents a proud group of folks who are trying to keep the small producer and the health-conscious consumer top-of-mind when it comes to filling the refrigerator and pantry.As a large organization that provides a variety of services for its regional member clubs, FMU continually strives to better understand its own profitability. FMU has four key support services to assist its members: Member Services, Social Media, Resource Deployment, and Administrative Services. These four support departments exist for the benefit of the three operating segments, which are organized geographically: East, Central, and West. While the support services primarily assist the operating segments, they also cross over and assist each other. The services offered by the support departments, along with the original cost of each support department, are as follows. ## Cost Allocation Methods at FMU### Compare Your Cost Allocations**Task:** Compare your cost allocations from the direct and reciprocal methods. Comment on how similar or different they are, and make a recommendation to FMU leadership concerning which method should be used for allocating these costs.**Response Area:** - Use the text editor to input your analysis and recommendations.### eTextbook and Media- **Resources:** - [eTextbook 1](#) - [eTextbook 2](#)---### Consideration of the Reciprocal Method**Task:** Should FMU consider using the reciprocal method for allocating some support service costs while using the direct method for others? Provide an explanation. If it should, specify which support services you would recommend for the reciprocal method and explain why.**Response Area:** - Use the text editor to provide your detailed explanation and recommendations. ## Cost Allocation using Direct and Reciprocal Methods### Support Departments and Operating SegmentsThe table presents an analysis of Support Departments and their allocation across Operating Segments using the Direct and Reciprocal Methods. The main departments considered are Member Services, Social Media, Resource Deployment, and Admin Services. The operating segments are named East, Central, and West.### Original Cost Distribution- **Support Departments:** - Member Services: $20,000 - Social Media: $30,000 - Resource Deployment: $40,000 - Admin Services: $50,000- **Operating Hours:** - Member Services: East - 600, Central - 300, West - 500 - Social Media, Resource Deployment, and Admin Services have detailed deployment hours, but specific hour numbers aren't required.### Direct Method Allocation**Support Departments to Operating Departments:**1. The original costs are allocated directly without interacting between support departments: - Member Services costs are fully allocated and reduced to $0. - Social Media costs are allocated $10,000 each to East, Central, and West. - Resource Deployment costs $10,666.67 (East/Central) and $16,000 (West). - Admin Services costs are fully allocated across operating departments, making the total $0 in support departments.2. **Final Allocation (Direct Method):** - East: $48,468.86 - Central: $43,003.66 - West: $48,527.48### Reciprocal Method Allocation**Simultaneous Equations Solution Approach:**1. **Allocation Process:** - Reciprocal method considers mutual services exchanged among support departments before allocation to operating units. - Equations formed by considering interaction among all departments.2. **Detailed Allocation:** - Member Services: Negative values indicate initial costs distributed back. - Social Media: Complex interaction among departments, final allocation gives remaining services value for operations. - Resource Deployment and Admin Services follow similar inter-department cost exchanges.3. **Final Allocation (Reciprocal Method):** - East: $48,301.30 - Central: $42,795.88 - West: $48,902.82**Total Supporting Cost:** $140,000### Graph/Diagram ExplanationThere is no graphical representation; only tabulated numeric values are

There are different methods for allocation of service department costs over the production departments so that the appropriate portion of service departmental costs can be charged over the final products. Some of the methods are: direct method, step-ladder method, reciprocal method etc. Direct Method: The direct method involves allocation of service department costs to production departments with only one set of intermediate cost pools. Cost allocation under the direct method is made using one specific cost driver to the intermediate cost pool. For example, Member service departmental costs are allocated to operating departments(The intermediate-level pools) based on the number of member service hours in each operating segment (East, central and West). Reciprocal Method: The reciprocal method or the algebraic method of allocating service department costs involves consideration of all departmental interrelationships and expressing these relationships in the form of simultaneous equations. These equations call for reciprocal allocation of service departmental costs not only among the production departments but also the service departments as well. Thus, no ranking on the basis of benefits is required and the sequential step ladder method is not applicable. The reciprocal method is the most complex of all the allocation methods, but it is the most technically correct approach and, if the computations are properly formatted, this will provide the best allocations. This is the point where these two systems differ with no similarities in between. Based on the above discussion, the FMU leadership should use the reciprocal method for allocating the service departmental costs over the operating segments because of better representation of segment level costs. If the reciprocal method is followed, the allocation starts from the service department providing services to most of the departments (both service and operating). Here, such a department is administrative service which provides all the three operating segments and three other service departments. This is followed by the next service department resource deployment which provides services to two other service departments besides all the operating segments. After allocating these two service departmental costs to all the relevant departments, the remaining support departments also get their share of other service department costs. The total costs of the remaining support departments will then be distributed over all the operating segments. This is the best method of cost allocation over all the other methods as it ensures all the costs are rationally distributed between the departments using the service of the other. There is no segregation need to be done as to using direct method for some costs and reciprocal method for some other costs. Because, in the reciprocal method also, the first two support departmental costs, member service and social media, are properly distributed over the three operating segments in a similar way to direct method. Hence, reciprocal method should be used regardless.