Chapter 5, Problem 1PB

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:

Instructions

1. 1. Assuming that Hooligan Adventure Supply uses the sequential method to allocate its support department costs, which support department does it most likely allocate first?
2. 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.
3. 3. If Hooligan Adventure Supply wanted to use a more accurate support department cost allocation method, which method should it choose? What might discourage the company from using this method?