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otals $427,625 $678,375 $1,106,000 To prove Carol's point, allocate the support department costs in her company using the reciprocal method in Exce Total cost Support Department Cost Allocation Comparison L M

otals $427,625 $678,375 $1,106,000 To prove Carol's point, allocate the support department costs in her company using the reciprocal method in Exce Total cost Support Department Cost Allocation Comparison L M

FINANCIAL ACCOUNTING
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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At the end of a long day of training, Steven and Carol are visiting over one last cup of coffee. The final segment of the training session, yet to come, is a refresher on support department cost allocation methods. Steven is thinking of skipping out early, since his company firmly believes in only one of these methods. Steven: I'm telling you, Carol, the reciprocal method is the only way to go. It's by far the most accurate, and even though it takes a little bit of set-up in Excel (or something similar), the additional accuracy is worth it. Carol: Carol knew that this session was on the schedule for today's training, so she brought her own direct method cost allocations along. She quickly pulled them out of her bag and showed Steven the following. Costs A's time (in hours) provided to B's time (in hours) provided to Costs Really? At our company we have always used the direct method. We find that it's much easier to explain this approach to our operating managers, and everyone appreciates the simplicity of it. We use our extra time to perform other worthwhile analyses for our company. Besides, have you ever really compared your final costs under the reciprocal method with what they'd be under the direct method? I bet they're not even that different. Allocation of A Allocation of B Totals (a) Total cost Support Departments A $55,000 (55,000) Support Departments A $55,000 100 B $79,000 (79,000) B $79,000 200 Operating Departments L $334,000 Operating Departments 500 300 M $638,000 L M $334,000 $638,000 34,375 20,625 59,250 19,750 $427,625 $678,375 $1,106,000 Support Department Cost Allocation Comparison L To prove Carol's point, allocate the support department costs in her company using the reciprocal method in Excel. M 300 100 Totals $1,106,000 Are the final cost allocations similar under the direct and reciprocal methods?
Transcribed Image Text:At the end of a long day of training, Steven and Carol are visiting over one last cup of coffee. The final segment of the training session, yet to come, is a refresher on support department cost allocation methods. Steven is thinking of skipping out early, since his company firmly believes in only one of these methods. Steven: I'm telling you, Carol, the reciprocal method is the only way to go. It's by far the most accurate, and even though it takes a little bit of set-up in Excel (or something similar), the additional accuracy is worth it. Carol: Carol knew that this session was on the schedule for today's training, so she brought her own direct method cost allocations along. She quickly pulled them out of her bag and showed Steven the following. Costs A's time (in hours) provided to B's time (in hours) provided to Costs Really? At our company we have always used the direct method. We find that it's much easier to explain this approach to our operating managers, and everyone appreciates the simplicity of it. We use our extra time to perform other worthwhile analyses for our company. Besides, have you ever really compared your final costs under the reciprocal method with what they'd be under the direct method? I bet they're not even that different. Allocation of A Allocation of B Totals (a) Total cost Support Departments A $55,000 (55,000) Support Departments A $55,000 100 B $79,000 (79,000) B $79,000 200 Operating Departments L $334,000 Operating Departments 500 300 M $638,000 L M $334,000 $638,000 34,375 20,625 59,250 19,750 $427,625 $678,375 $1,106,000 Support Department Cost Allocation Comparison L To prove Carol's point, allocate the support department costs in her company using the reciprocal method in Excel. M 300 100 Totals $1,106,000 Are the final cost allocations similar under the direct and reciprocal methods?
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