Cost Management
8th Edition
ISBN: 9781259917028
Author: BLOCHER, Edward
Publisher: Mcgraw-hill Education,
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Chapter 7, Problem 39P
1.
To determine
Ascertain the cost allocated using each method of allocation.
1.
Expert Solution
Explanation of Solution
a) Direct method:
Compute the base for allocation:
| Departmental Cost Allocation Bases | |||||
| Particulars | Info systems | Facilities | Programming | Consult | Training |
| Info systems | $600 | $1,200 | $300 | $900 | |
| 20% | 40% | 10% | 30% | ||
| Facilities | $240 | $960 | $600 | $600 | |
| 10% | 40% | 25% | 25% | ||
| Total Amount | $80,000 | $40,000 | $160,000 | $190,000 | $125,000 |
Table (1)
Compute the total costs allocated:
| Info systems | |||
| Particulars | Programming | Consult | Training |
| Service percentage | 40% | 10% | 30% |
| Allocation percentage | 50.00% | 12.50% | 37.50% |
| Allocation amount ($80,000) | $40,000 | $10,000 | $30,000 |
| Facilities | |||
| Particulars | Programming | Consult | Training |
| Service percentage | 40% | 25% | 25% |
| Allocation percentage | 44.44% | 27.78% | 27.78% |
| Allocation amount ($40,000) | $17,776 | $11,112 | $11,112 |
| Particulars | Programming | Consult | Training |
| Info systems | $40,000 | $10,000 | $30,000 |
| Facilities | $17,776 | $11,112 | $11,112 |
| Total Amount Allocated | $57,776 | $21,112 | $41,112 |
| Particulars | Programming | Consult | Training |
| First phase allocation | $160,000 | $190,000 | $125,000 |
| Info systems | $40,000 | $10,000 | $30,000 |
| Facilities | $17,776 | $11,112 | $11,112 |
| Total Amount Allocated | $217,776 | $211,112 | $166,112 |
Table (2)
b.1) Split-off method if info systems are split first:
Compute the base for allocation:
| Departmental Cost Allocation Bases | |||||
| Particulars | Info systems | Facilities | Programming | Consult | Training |
| Info systems | $600 | $1,200 | $300 | $900 | |
| 20% | 40% | 10% | 30% | ||
| Facilities | $240 | $960 | $600 | $600 | |
| 10% | 40% | 25% | 25% | ||
| Total Amount | $80,000 | $40,000 | $160,000 | $190,000 | $125,000 |
Table (3)
Compute the total costs allocated:
| Particulars | Facilities | Programming | Consult | Training |
| Service percentage | 20% | 40% | 10% | 30% |
| Allocation amount ($80,000) | $16,000 | $32,000 | $8,000 | $24,000 |
| Facilities | ||||
| Particulars | Programming | Consult | Training | |
| Service percentage | 40% | 25% | 25% | |
| Allocation percentage | 44.44% | 27.78% | 27.78% | |
| Allocation amount ($56,000) | $24,886 | $15,557 | $15,557 | |
| Particulars | Programming | Consult | Training | |
| Info systems | $32,000 | $8,000 | $24,000 | |
| Facilities | $24,886 | $15,557 | $15,557 | |
| Total Amount Allocated | $56,886 | $23,557 | $39,557 | |
| Particulars | Programming | Consult | Training | |
| First phase allocation | $160,000 | $190,000 | $125,000 | |
| Info systems | $32,000 | $8,000 | $24,000 | |
| Facilities | $24,886 | $15,557 | $15,557 | |
| Total Amount Allocated | $216,886 | $213,557 | $164,557 | |
Table (4)
b.2) Split-off method if info systems are split first:
Compute the base for allocation:
| Departmental Cost Allocation Bases | |||||
| Particulars | Info systems | Facilities | Programming | Consult | Training |
| Info systems | $600 | $1,200 | $300 | $900 | |
| 20% | 40% | 10% | 30% | ||
| Facilities | $240 | $960 | $600 | $600 | |
| 10% | 40% | 25% | 25% | ||
| Total Amount | $80,000 | $40,000 | $160,000 | $190,000 | $125,000 |
Table (5)
Compute the total costs allocated:
| Particulars | Facilities | Programming | Consult | Training |
| Service percentage | 10% | 40% | 25% | 25% |
| Allocation amount ($40,000) | $4,000 | $16,000 | $10,000 | $10,000 |
| Info systems | ||||
| Particulars | Programming | Consult | Training | |
| Service percentage | 40% | 10% | 30% | |
| Allocation percentage | 50.00% | 12.50% | 37.50% | |
| Allocation amount ($84,000) | $42,000 | $10,500 | $31,500 | |
| Particulars | Programming | Consult | Training | |
| Facilities | $16,000 | $10,000 | $10,000 | |
| Info systems | $42,000 | $10,500 | $31,500 | |
| Total Amount Allocated | $58,000 | $20,500 | $41,500 | |
| Particulars | Programming | Consult | Training | |
| First phase allocation | $160,000 | $190,000 | $125,000 | |
| Facilities | $16,000 | $10,000 | $10,000 | |
| Info systems | $42,000 | $10,500 | $31,500 | |
| Total Amount Allocated | $218,000 | $210,500 | $166,500 | |
Table (6)
c) Reciprocal method
Compute the base for allocation:
| Departmental Cost Allocation Bases | |||||
| Particulars | Info systems | Facilities | Programming | Consult | Training |
| Info systems | $600 | $1,200 | $300 | $900 | |
| 20% | 40% | 10% | 30% | ||
| Facilities | $240 | $960 | $600 | $600 | |
| 10% | 40% | 25% | 25% | ||
| Total Amount | $80,000 | $40,000 | $160,000 | $190,000 | $125,000 |
Table (7)
Compute the total costs allocated:
| Info systems | |||
| Particulars | Programming | Consult | Training |
| Allocation percentage | 40% | 10% | 30% |
| Allocation amount ($85,714.29) | $34,286 | $8,571 | $25,714 |
| Facilities | |||
| Particulars | Programming | Consult | Training |
| Allocation percentage | 40% | 25% | 25% |
| Allocation amount ($57,142.86) | $22,857 | $14,286 | $14,286 |
| Particulars | Programming | Consult | Training |
| Info systems | $34,286 | $8,571 | $25,714 |
| Facilities | $22,857 | $14,286 | $14,286 |
| Total Amount Allocated | $57,143 | $22,857 | $40,000 |
| Particulars | Programming | Consult | Training |
| First phase allocation | $160,000 | $190,000 | $125,000 |
| Info systems | $34,286 | $8,571 | $25,714 |
| Facilities | $22,857 | $14,286 | $14,286 |
| Total Amount Allocated | $217,143 | $212,857 | $165,000 |
Table (8)
Compute the base for allocation:
| Reciprocal Cost allocation Using Solver | |||||
| Particulars | Allocated costs | Service rates to | Allocation to | ||
| Info systems | Facilities | Info systems | Facilities | ||
| Info systems | $85,714.29 | 1.00 | (0.20) | $85,714 | ($17,143) |
| Facilities | $57,142.86 | (0.10) | 1.00 | ($5,714) | $57,143 |
| Total | $80,000 | $40,000 | |||
Table (9)
2.
To determine
Ascertain the impact of the proposed plan and its overall impact.
2.
Expert Solution
Explanation of Solution
A new allocation base based on the floor space occupied, machine hours may provide a more similar value like the outside market cost. In such a case the market prices shall force a more competitive service department costs similar to the service costs of the outside suppliers.
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