Q.1 Compare your cost allocations from the direct and reciprocal methods. omment on how similar or different they are, and make a recommendation to FMU leadership as to which it should use for allocating these costs.Q.2 Should FMU consider using the reciprocal method for allocating some of the support service costs while using the direct method for others? Explain. If it did, which support services would you recommend for the reciprocal method? Explain why. 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.### Support Departments and Operating Segments- **Original cost**: - Member Services: $20,000 - Social Media: $30,000 - Resource Deployment: $40,000 - Admin. Services: $50,000- **Member Services hours**: - East: 600 - Central: 300 - West: 500- **Social Media hours**: - East: 500 - Central: 500 - West: 500- **Resource Deployment hours**: - East: 400 - Central: 500 - West: 600- **Admin. Services hours**: - East: 500 - Central: 400 - West: 400The diagram above is a table that illustrates the distribution of hours for various support functions across the geographic regions represented by FMU's operating segments. Each support service department has an associated original cost and allocates hours to East, Central, and West segments to indicate resource usage and efficiency. ## Educational Material on Cost Allocation Methods### Direct Method:**Support Departments:**- Member Services ($20,000)- Social Media ($30,000)- Resource Deployment ($40,000)- Admin. Services ($50,000)**Operating Departments:**- East- Central- West#### Cost Allocation:- **Original Cost:** - Member Services: $20,000 - Social Media: $30,000 - Resource Deployment: $40,000 - Admin. Services: $50,000- **Allocate Member Services:** - East: $8,571.43 - Central: $4,285.71 - West: $7,142.86- **Allocate Social Media:** - East, Central, West: $10,000 each- **Allocate Resource Deployment:** - East: $10,666.67 - Central: $13,333.33 - West: $16,000.00- **Allocate Admin. Services:** - East: $19,230.76 - Central: $15,384.62 - West: $15,384.62**Total Costs:**- East: $48,468.86- Central: $43,003.66- West: $48,527.48### Reciprocal Method:**Support Departments:**- Member Services ($20,000)- Social Media ($30,000)- Resource Deployment ($40,000)- Admin. Services ($50,000)**Operating Units:**- East- Central- West#### Cost Allocation:- **Original Costs:** - Allocated across support and operating departments- **Allocate Member Services:** - East: $10,776.94 - Central: $5,388.47 - West: $8,980.79- **Allocate Social Media:** - East, Central, West: $14,307.99 each- **Allocate Resource Deployment:** - East: $10,058.48 - Central: $12,573.10 - West: $15,087.72- **Allocate Admin Services:** - East: $13,157.89 - Central: $10,526.32

There are different methods for allocation of service department costs over the production…

Answered: Q.1 Compare your cost allocations from…

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q