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 2BE: Support department allocations The centralized computer technology department of Hardy Company has...

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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%

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