
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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Chapter 7 Solutions
Cost Management
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