Support-department cost allocations; direct, step-down, and reciprocal methods. Ballantine Corporation has two operating departments: Eastern Department and Western Department. Each of the operating departments uses the services of the company's two support departments: Engineering and Information Technology. Additionally, the Engineering and Information Technology departments use the services of each other. Data concerning the past year are as follows: Support Departments Information Engineering Technology Department Department $250,000 Operating Departments Eastern Western Total Budgeted overhead costs before any interdepartment cost allocations $300,000 $650,000 $920,000 $2,120,000 Support work furnished: By Engineering Budgeted Engineering salaries Percentage By Information Technology Budgeted IT service hours Percentage $60,000 $50,000 $90,000 $200,000 30% 25% 45% 100% 1,050 35% 450 1,500 3,000 15% 50% 100%

Support-department cost allocations; direct, step-down, and reciprocal methods. Ballantine Corporation has two operating departments: Eastern Department and Western Department. Each of the operating departments uses the services of the company's two support departments: Engineering and Information Technology. Additionally, the Engineering and Information Technology departments use the services of each other. Data concerning the past year are as follows: Support Departments Information Engineering Technology Department Department $250,000 Operating Departments Eastern Western Total Budgeted overhead costs before any interdepartment cost allocations $300,000 $650,000 $920,000 $2,120,000 Support work furnished: By Engineering Budgeted Engineering salaries Percentage By Information Technology Budgeted IT service hours Percentage $60,000 $50,000 $90,000 $200,000 30% 25% 45% 100% 1,050 35% 450 1,500 3,000 15% 50% 100%

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter10: Evaluating Decentralized Operations

Section: Chapter Questions

Problem 6E: Varney Corporation, a manufacturer of electronics and communications systems, allocates Computing...

See similar textbooks

Related questions

Q: How does a product cost differ from a general, selling, and administrative cost? Give examples of…

A: Product Cost: Product costs are the expenses directly associated with making a particular product.…

Q: How is the total payment under a unit-price contract determined? When is such a contract likely to…

A: Unit price contract is a common pricing contract which is based on each unit or task of the…

Q: Which is not a common method used to allocate costs under the departmental approach? Multiple…

A: The common method used to allocate costs under the departmental approach are as follow: Step…

Q: What are some common challenges that companies face when implementing standard cost systems, and how…

A: Implementing a standard cost system can be a challenging process for companies, and some common…

Q: Which of the following is not a factor to consider when deciding whether to accept a special order?…

A: It is the process of making decisions that involve the management of costs in order to achieve…

Q: How would you recommend stabilizing the company's unit product cost?

A: Unit cost of a product is determined by dividing the total cost of the units produced by the total…

Q: Salary paid to administration staff is an example of a direct cost. TRUE or FALSE?

A: Direct cost: Direct cost is the cost which is directly related to production process. Indirect cost…

Q: Which of the following statements is true? (You may select more than one answer.)a. A common cost is…

A: Opportunity cost is the value of the next best alternative over the selected alternative.The loss of…

Q: Why would a firm want to measure profits by segment and how would common costs be allocated to each…

A: Introduction: Common costs are company expenses that are shared by numerous departments. Common…

Q: “Under the general guideline for transfer pricing, the minimum transfer price will vary depending on…

A: Transfer Pricing: This refers to a process of pricing in which one sub-unit of an organization…

Q: How many cost pools should a company use when allocating costs to divisions, channels, and…

A: Cost Pool: The cost accountant makes individual group of all the indirect cost used in an item. The…

Q: How would you define fixed and variable product costs? How are these costs used in determining the…

A: Cost of production is the total cost involved in producing a particular volume of products. These…

Q: t factors or criteria doe

A: Several elements and criteria should be examined when deciding on the best cost allocation strategy…

Q: components of the Contribution Margin Income Statement, how does management use this in the decision…

Q: Can someone help by providing an example of revenues and costs that would be impacted by outsourcing…

A: Ratio analysis is a valuable tool to evaluate the financial impact of outsourcing decisions. Various…

Concept explainers

Overheads

In cost accounting, overhead refers to those expenses which occur during the operating of a business. Overhead includes the fixed, variable, or semi-variable which is not directly involved with a company product or service. It is very important to analyze overhead expense as it helps the company in determining how much a company must charge for its products and services so that they can generate profit. Overhead expenses depend upon the nature of the business operations.

Question

Which method would you recommend that Ballantine Corporation use to allocate service-department costs? Why?

Support-department cost allocations; direct, step-down, and reciprocal methods. Ballantine
Corporation has two operating departments: Eastern Department and Western Department. Each of the
operating departments uses the services of the company's two support departments: Engineering and
Information Technology. Additionally, the Engineering and Information Technology departments use the
services of each other. Data concerning the past year are as follows:
Support Departments
Information
Engineering Technology Department Department
$250,000
Operating Departments
Eastern
Western
Total
Budgeted overhead costs before
any interdepartment cost
allocations
$300,000
$650,000
$920,000 $2,120,000
Support work furnished:
By Engineering
Budgeted Engineering salaries
Percentage
By Information Technology
Budgeted IT service hours
Percentage
$60,000
$50,000
$90,000
$200,000
30%
25%
45%
100%
1,050
35%
450
1,500
3,000
15%
50%
100%

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step 3

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 3 steps with 1 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions

Support department allocations The centralized computer technology department of Hardy Company has expenses of 320,000. The department has provided a total of 4,000 hours of service for the period. The Retail Division has used 2,750 hours of computer technology service during the period, and the Commercial Division has used 1,250 hours of computer technology service. How much should each division be allocated for computer technology department services?
A manufacturing company has two service and two production departments. Human Resources and Machine Repair are the service departments. The production departments are Grinding and Polishing. The following data have been estimated for next years operations: The direct charges identified with each of the departments are as follows: The human resources department services all departments of the company, and its costs are allocated using the numbers of employees within each department, while machine repair costs are allocable to Grinding and Polishing on the basis of machine hours. 1. Distribute the service department costs, using the direct method. 2. Distribute the service department costs, using the sequential distribution method, with the department servicing the greatest number of other departments distributed first.
A company uses charging rates to allocate service department costs to the using departments. The accountant compiled the following information on one of the service departments: If Department K plans to use 1,350 hours of the service departments service in the coming year, how much of the service departments cost is allocated to Department K? a. 3,375 b. 27,300 c. 26,325 d. 23,950
Corazon Manufacturing Company has a purchasing department staffed by five purchasing agents. Each agent is paid 28,000 per year and is able to process 4,000 purchase orders. Last year, 17,800 purchase orders were processed by the five agents. Required: 1. Calculate the activity rate per purchase order. 2. Calculate, in terms of purchase orders, the: a. total activity availability b. unused capacity 3. Calculate the dollar cost of: a. total activity availability b. unused capacity 4. Express total activity availability in terms of activity capacity used and unused capacity. 5. What if one of the purchasing agents agreed to work half time for 14,000? How many purchase orders could be processed by four and a half purchasing agents? What would unused capacity be in purchase orders?
Support-department cost allocations; direct, step-down, and reciprocal methods. Ballantine Corporation has two operating departments: Eastern Department and Western Department. Each of the operating departments uses the services of the company’s two support departments: Engineering and Information Technology. Additionally, the Engineering and Information Technology departments use the services of each other. Data concerning the past year are as follows:
Founder Consulting Corporation has its headquarters in Memphis and operates from three branch offices in Nashville, Atlanta, and Louisville. Two of the company's activity cost pools are Administrative Service and Development Service. These costs are allocated to the three branch offices using an activity-based costing system. Information for next year follows: Activity Cost Pool Activity Measure Estimated Cost Administrative service % of time devoted to branch $ 1,680,000 Development service Computer time $ 630,000 Estimated branch data for next year is as follows: Time to branch Computer time Nashville 70 % 1,600,000 minutes Atlanta 20 % 1,200,000 minutes Louisville 10 % 400,000 minutes Total 100 % 3,200,000 minutes How much of the headquarters cost allocation should Nashville expect to receive next year?
Miracle Consulting Corporation has its headquarters in Chicago and operates from three branch offices in Portland, Dallas, and Miami. Two of the company's activity cost pools are General Service and Research Service. These costs are allocated to the three branch offices using an activity-based costing system. Information for next year follows: Activity Cost Pool Activity Measure Estimated Cost General service % of time devoted to branch $ 700,000 Research service Computer time $ 140,000 Estimated branch data for next year is as follows: % of time Computer time Portland 30 % 200,000 minutes Dallas 60 % 150,000 minutes Miami 10 % 50,000 minutes How much of the headquarters cost allocation should the Dallas office expect to receive next year? Multiple Choice $409,500. $472,500. $504,000. $280,000.
Western Services has three service departments: Information Systems (IS), Personnel, and Administration. There are two operating departments: Residential and Commercial. A summary of costs and other data for each department prior to allocation of service department costs for the latest period follows: Department Information Systems (IS) Personnel Administration IS 170 115 3,900 Number of IS service tickets Number of employees Square footage occupied The costs of the service departments and the allocation basis for each department follow. Direct Cost $ 33,000 40,000 36,700 Personnel 200 120 8,000 Administration Residential Commercial 155 1,410 107 138 3,800 16,100 Allocation Base IS service tickets Employees Square footage occupied. 940 162 69,500 Required: a. Assume that the company allocates service department costs to production departments using the direct method. What amount of Information Systems (IS) Department costs will be allocated to the Commercial Department? b. Assume the…
Direct and step methodsSalado Inc. provides cleaning services through its Residential and Commercial divisions. Support services of the company are provided by Personnel and Administration areas. Costs of these two areas are allocated to the revenue producing departments. Personnel costs are allocated using number of employees; administration costs are allocated using direct department costs. The following annual budgeted information (presented in a benefits-provided ranking) is available: Personnel Administration Residential Commercial Direct costs $140,000 $180,000 $480,000 $800,000 Number of employees 12 30 72 48 Direct labor hours 60,000 90,000 Square feet cleaned 450,000 570,000 a. Using the direct method, allocate the costs of Personnel and Administration to the Residential and Commercial divisions. Total support costs allocated to Residential = Total support costs allocated to Commercial = b. Using the step method, allocate the costs…
Middler Corporation, a manufacturer of electronics and communications systems, uses a service department charge system to charge profit centers with Computing and Communications Services (CCS) service department costs. The following table identifies an abbreviated list of service categories and activity bases used by the CCS department. The table also includes some assumed cost and activity base quantity information for each service for October. CCS ServiceCategory Activity Base Budgeted Cost Budgeted ActivityBase Quantity Help desk Number of calls $55,660 2,200 Network center Number of devices monitored 668,100 10,200 Electronic mail Number of user accounts 57,500 5,750 Handheld technology support Number of handheld devices issued 153,600 9,600 One of the profit centers for Middler Corporation is the Communication Systems (COMM) sector. Assume the following information for the COMM sector: The sector has 1,000 employees, of whom 50% are office employees.…
University Printers has two service departments (Maintenance and Personnel) and two operating departments (Printing and Developing). Management has decided to allocate maintenance costs on the basis of machine-hours in each department and personnel costs on the basis of labor-hours worked by the employees in each. The following data appear in the company records for the current period: Printing Developing 3,000 2,000 $30,000 Maintenance Personnel Machine-hours 1,000 1,000 Labor-hours 500 500 Department direct costs $13,000 $37,750 $48,400 University Printers estimates that the variable costs in the Personnel Department total $19,000 and in the Maintenance Department variable costs total $8,500. Avoidable fixed costs in the Personnel Department are $6,600. Required: If University Printers outsources the Personnel Department functions, what is the maximum it can pay an outside vendor without increasing total costs? (Do not round intermediate calculations.) Maximum Amount
The Riverbed Brokerage firm is organized into two major sales divisions: institutional clients and retail clients. The firm also has two support departments: research and administration. The research department’s costs are allocated to the other departments based on a log of hours spent on tasks for each user. The administration department’s costs are allocated based on the number of employees in each department. Records are available for last period as follows: Support departments Operating departments Research Administration Institutional RetailPayroll costs $ 338,400 $ 289,700 $ 366,600 $ 585,200Other costs $ 231,370 $ 163,800 $ 112,830 $ 238,870Research hours 100 200 500 300Number of employees 7 10…