Cost Management
8th Edition
ISBN: 9781259917028
Author: BLOCHER, Edward
Publisher: Mcgraw-hill Education,
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Question
Chapter 7, Problem 40P
To determine
Ascertain the cost allocated using each method of allocation.
Expert Solution & Answer
Explanation of Solution
a) Direct method:
Compute the base for allocation:
| Departmental Cost Allocation Bases | ||||
| Particulars | Information Technology | Administration | Education | Program Management |
| Direct labor hour | 2000 | 6000 | 4000 | 4000 |
| Direct labor percent | 12.5000% | 37.5000% | 25.0000% | 25.0000% |
| Headcount | 2 | 3 | 3 | 4 |
| Headcount percent | 16.6667% | 25.0000% | 25.0000% | 33.3333% |
| Direct costs | $6,000 | $122,000 | $100,000 | $190,000 |
Table (1)
Compute the base for allocation of indirect costs:
| Indirect labor costs | ||||
| Particulars | Information Technology | Administration | Education | Program Management |
| Direct labor hour | 2000 | 6000 | 4000 | 4000 |
| Allocation percentage | 12.5000% | 37.5000% | 25.0000% | 25.0000% |
| Allocation amount ($50,000) | $6,250 | $18,750 | $12,500 | $12,500 |
| Indirect supplies costs | ||||
| Particulars | Information Technology | Administration | Education | Program Management |
| Headcount | 2 | 3 | 3 | 4 |
| Allocation percentage | 16.6667% | 25.0000% | 25.0000% | 33.3333% |
| Allocation amount ($15,000) | $2,500 | $3,750 | $3,750 | $5,000 |
| Particulars | Information Technology | Administration | ||
| First phase allocation | $6,000 | $122,000 | ||
| Information Technology | $6,250 | $18,750 | ||
| Administration | $2,500 | $3,750 | ||
| Total Amount Allocated | $14,750 | $144,500 | ||
Table (2)
Compute the total costs allocated:
| Information Technology | ||
| Particulars | Education | Program Management |
| Service percentage | 20% | 60% |
| Allocation percentage | 25.00% | 75.00% |
| Allocation amount ($14,750) | $3,688 | $11,063 |
| Administration | ||
| Particulars | Education | Program Management |
| Service percentage | 30% | 60% |
| Allocation percentage | 33.3333% | 66.6667% |
| Allocation amount ($144,500) | $48,167 | $96,333 |
| Particulars | Education | Program Management |
| Information Technology | $3,688 | $11,063 |
| Administration | $48,167 | $96,333 |
| Total Amount Allocated | $51,854 | $107,396 |
| Particulars | Education | Program Management |
| First phase allocation | $100,000 | $190,000 |
| Indirect labor costs | $12,500 | $12,500 |
| Indirect supplies costs | $3,750 | $5,000 |
| Information Technology | $3,688 | $11,063 |
| Administration | $48,167 | $96,333 |
| Total Amount Allocated | $168,104 | $314,896 |
Table (3)
Compute the further allocation of the costs:
| Departmental Cost Allocation Bases | ||
| Particulars | Mental health | Housing |
| Direct labor hour | 2,000 | 2,000 |
| Direct labor percent | 50% | 50% |
| Headcount | 1 | 3 |
| Headcount percent | 25% | 75% |
| Education | ||
| Particulars | Mental health | Housing |
| Service percentage | 50% | 50% |
| Allocation percentage | 50% | 50% |
| Allocation amount ($168,104) | $84,052 | $84,052 |
| Program Management | ||
| Particulars | Mental health | Housing |
| Service percentage | 25% | 75% |
| Allocation percentage | 25% | 75% |
| Allocation amount ($314,896) | $78,724 | $236,172 |
| Particulars | Mental health | Housing |
| Education | $84,052 | $84,052 |
| Program Management | $78,724 | $236,172 |
| Total Amount Allocated | $162,776 | $320,224 |
Table (4)
b.1) Split-off method if info systems are split first:
Compute the base for allocation:
| Departmental Cost Allocation Bases | ||||
| Particulars | Information Technology | Administration | Education | Program Management |
| Direct labor hour | 2000 | 6000 | 4000 | 4000 |
| Direct labor percent | 12.5000% | 37.5000% | 25.0000% | 25.0000% |
| Headcount | 2 | 3 | 3 | 4 |
| Headcount percent | 16.6667% | 25.0000% | 25.0000% | 33.3333% |
| Direct costs | $6,000 | $122,000 | $100,000 | $190,000 |
| Indirect labor costs | ||||
| Particulars | Information Technology | Administration | Education | Program Management |
| Direct labor hour | 2000 | 6000 | 4000 | 4000 |
| Allocation percentage | 12.5000% | 37.5000% | 25.0000% | 25.0000% |
| Allocation amount ($50,000) | $6,250 | $18,750 | $12,500 | $12,500 |
| Indirect supplies costs | ||||
| Particulars | Information Technology | Administration | Education | Program Management |
| Headcount | 2 | 3 | 3 | 4 |
| Allocation percentage | 16.6667% | 25.0000% | 25.0000% | 33.3333% |
| Allocation amount ($15,000) | $2,500 | $3,750 | $3,750 | $5,000 |
| Particulars | Information Technology | Administration | Education | Program Management |
| First phase allocation | $6,000 | $122,000 | $100,000 | $190,000 |
| Information Technology | $6,250 | $18,750 | $12,500 | $12,500 |
| Administration | $2,500 | $3,750 | $3,750 | $5,000 |
| Total Amount Allocated | $14,750 | $144,500 | $116,250 | $207,500 |
Table (5)
Compute the costs allocated:
| Particulars | Administration | Education | Program Management |
| Service percentage | 20% | 20% | 60% |
| Allocation amount ($14,750) | $2,950 | $2,950 | $8,850 |
| Administration | |||
| Particulars | Education | Program Management | |
| Service percentage | 30% | 60% | |
| Allocation percentage | 33.3333% | 66.6667% | |
| Allocation amount ($147,450) | $49,150 | $98,300 | |
| Particulars | Education | Program Management | |
| Computer | $2,950 | $8,850 | |
| CFL Group | $49,150 | $98,300 | |
| Total Amount Allocated | $52,100 | $107,150 | |
| Particulars | Education | Program Management | |
| First phase allocation | $116,250 | $207,500 | |
| Information Technology | $2,950 | $8,850 | |
| Administration | $49,150 | $98,300 | |
| Total Amount Allocated | $168,350 | $314,650 | |
Table (6)
Compute the total costs allocated:
| Departmental Cost Allocation Bases | ||
| Particulars | Mental health | Housing |
| Direct labor hour | 2,000 | 2,000 |
| Direct labor percent | 50% | 50% |
| Headcount | 1 | 3 |
| Headcount percent | 25% | 75% |
| Education | ||
| Particulars | Mental health | Housing |
| Service percentage | 50% | 50% |
| Allocation percentage | 50% | 50% |
| Allocation amount ($168,350) | $84,175 | $84,175 |
| Program Management | ||
| Particulars | Mental health | Housing |
| Service percentage | 25% | 75% |
| Allocation percentage | 25% | 75% |
| Allocation amount ($314,650) | $78,663 | $235,988 |
| Particulars | Mental health | Housing |
| Education | $84,175 | $84,175 |
| Program Management | $78,663 | $235,988 |
| Total Amount Allocated | $162,838 | $320,163 |
Table (7)
c) Reciprocal method
Compute the base for allocation:
| Departmental Cost Allocation Bases | ||||
| Particulars | Information Technology | Administration | Education | Program Management |
| Direct labor hour | 2000 | 6000 | 4000 | 4000 |
| Direct labor percent | 12.5000% | 37.5000% | 25.0000% | 25.0000% |
| Headcount | 2 | 3 | 3 | 4 |
| Headcount percent | 16.6667% | 25.0000% | 25.0000% | 33.3333% |
| Direct costs | $6,000 | $122,000 | $100,000 | $190,000 |
| Indirect labor costs | ||||
| Particulars | Information Technology | Administration | Education | Program Management |
| Direct labor hour | 2000 | 6000 | 4000 | 4000 |
| Allocation percentage | 12.5000% | 37.5000% | 25.0000% | 25.0000% |
| Allocation amount ($50,000) | $6,250 | $18,750 | $12,500 | $12,500 |
| Indirect supplies costs | ||||
| Particulars | Information Technology | Administration | Education | Program Management |
| Headcount | 2 | 3 | 3 | 4 |
| Allocation percentage | 16.6667% | 25.0000% | 25.0000% | 33.3333% |
| Allocation amount ($15,000) | $2,500 | $3,750 | $3,750 | $5,000 |
| Particulars | Information Technology | Administration | Education | Program Management |
| First phase allocation | $6,000 | $122,000 | $100,000 | $190,000 |
| Information Technology | $6,250 | $18,750 | $12,500 | $12,500 |
| Administration | $2,500 | $3,750 | $3,750 | $5,000 |
| Total Amount Allocated | $14,750 | $144,500 | $116,250 | $207,500 |
Table (8)
Compute the costs allocated:
| Information Technology | ||
| Particulars | Education | Program Management |
| Allocation percentage | 20% | 60% |
| Allocation amount ($29,795.92) | $5,959 | $17,878 |
| Administration | ||
| Particulars | Education | Program Management |
| Allocation percentage | 30% | 60% |
| Allocation amount ($150,459.18) | $45,138 | $90,276 |
| Particulars | Education | Program Management |
| Information Technology | $5,959 | $17,878 |
| Administration | $45,138 | $90,276 |
| Total Amount Allocated | $51,097 | $108,153 |
| Particulars | Education | Program Management |
| First phase allocation | $116,250 | $207,500 |
| Information Technology | $5,959 | $17,878 |
| Administration | $45,138 | $90,276 |
| Total Amount Allocated | $167,347 | $315,653 |
Table (9)
Compute the total costs allocated:
| Departmental Cost Allocation Bases | ||
| Particulars | Mental health | Housing |
| Direct labor hour | 2,000 | 2,000 |
| Direct labor percent | 50% | 50% |
| Headcount | 1 | 3 |
| Headcount percent | 25% | 75% |
| Education | ||
| Particulars | Mental health | Housing |
| Allocation percentage | 50% | 50% |
| Allocation amount ($167,347) | $83,674 | $83,674 |
| Program Management | ||
| Particulars | Mental health | Housing |
| Allocation percentage | 25% | 75% |
| Allocation amount ($315,653) | $78,913 | $236,740 |
| Particulars | Mental health | Housing |
| Education | $83,674 | $83,674 |
| Program Management | $78,913 | $236,740 |
| Total Amount Allocated | $162,587 | $320,413 |
Table (10)
Compute the base for allocation:
| Reciprocal Cost allocation Using Solver | |||||
| Particulars | Allocated costs | Service rates to | Allocation to | ||
| CFL Group | Computer | CFL Group | Computer | ||
| Information Technology | $29,795.92 | 1.00 | (0.20) | $29,796 | ($5,959) |
| Administration | $150,459.18 | (0.10) | 1.00 | ($15,046) | $150,459 |
| Total | $14,750 | $144,500 | |||
Table (11)
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Cost Management
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