Support department cost allocation Hooligan Adventure Supply produces and sells various outdoor equipment. The Molding and Assembly production departments are supported by the Personnel and Maintenance departments. Personnel costs are allocated to the production departments based on the number of employees, and Maintenance costs are allocated based on number of service calls. Information about these departments is detailed in the following table: Line Item Description Personnel Department Maintenance Department Molding Department Assembly Department Number of employees 28 10 41 49 Number of service calls 57 41 168 112 Department cost $15,000 $11,400 $72,000 $69,000 1. Which of the following statements matches the sequential method of cost allocations? a. Support departments are often allocated in order from lowest to the highest cost with preference given to the departments that serve few support departments and have no accurate cost drivers. b. Support departments are often allocated in order from highest to lowest cost with preference given to the departments that serve many support departments and have accurate cost drivers. c. The sequential method only allocates costs to departments that have a high profit margin. d. None of the above. Which department should be allocated first and identify the reason. Reason: a. It has the lowest departmental cost with no accurate cost driver b. It has the highest departmental cost with no accurate cost driver. c. It has the lowest departmental cost with an accurate cost driver. d. It has the highest departmental cost with an accurate cost driver. 2. Based on your response in part (1), determine the total costs allocated from each support department to each production department using the sequential method. Line Item Description Maintenance Department Molding Department Assembly Department Personnel Department cost allocation Maintenance Department cost allocation 3. Which allocation method is usually the most accurate? a. Direct method. b. Reciprocal method. c. Sequential method. d. None of the above. What is a potential disadvantage of the reciprocal method? a. It is the most complex method of cost allocation. b. Both fixed and variable costs are allocated based on the computed cost base. c. It considers the support department cost as its own department cost. d. All the above.
Support department cost allocation
Hooligan Adventure Supply produces and sells various outdoor equipment. The Molding and Assembly production departments are supported by the Personnel and Maintenance departments. Personnel costs are allocated to the production departments based on the number of employees, and Maintenance costs are allocated based on number of service calls. Information about these departments is detailed in the following table:
| Line Item Description | Personnel Department |
Maintenance Department |
Molding Department |
Assembly Department |
|---|---|---|---|---|
| Number of employees | 28 | 10 | 41 | 49 |
| Number of service calls | 57 | 41 | 168 | 112 |
| Department cost | $15,000 | $11,400 | $72,000 | $69,000 |
1. Which of the following statements matches the sequential method of cost allocations?
a. Support departments are often allocated in order from lowest to the highest cost with preference given to the departments that serve few support departments and have no accurate cost drivers.
b. Support departments are often allocated in order from highest to lowest cost with preference given to the departments that serve many support departments and have accurate cost drivers.
c. The sequential method only allocates costs to departments that have a high profit margin.
d. None of the above.
Which department should be allocated first and identify the reason.
Reason:
a. It has the lowest departmental cost with no accurate cost driver
b. It has the highest departmental cost with no accurate cost driver.
c. It has the lowest departmental cost with an accurate cost driver.
d. It has the highest departmental cost with an accurate cost driver.
2. Based on your response in part (1), determine the total costs allocated from each support department to each production department using the sequential method.
| Line Item Description | Maintenance Department |
Molding Department |
Assembly Department |
|---|---|---|---|
| Personnel Department cost allocation | |||
| Maintenance Department cost allocation |
3. Which allocation method is usually the most accurate?
a. Direct method.
b. Reciprocal method.
c. Sequential method.
d. None of the above.
What is a potential disadvantage of the reciprocal method?
a. It is the most complex method of cost allocation.
b. Both fixed and variable costs are allocated based on the computed cost base.
c. It considers the support department cost as its own department cost.
d. All the above.
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