Question

Magnum T.A. Inc. specializes in the assembly and installation of high-quality security systems for the home and business segments of the market. The four departments at its highly automated state-of-the-art assembly plant are as follows:
Service Departments Assembly Departments
Engineering Support .......... Home Security Systems
Information Systems Support ....... Business Security Systems
The budgeted level of service relationships at the start of the year was:
The actual level of service relationships for the year was:
Magnum collects fixed costs and variable costs of each department in separate cost pools. The actual costs (in thousands) in each pool for the year were:
Fixed costs are allocated on the basis of the budgeted level of service. Variable costs are allocated on the basis of the actual level of service.
The support department costs allocated to each assembly department are allocated to products on the basis of units assembled. The units assembled in each department during the year were:
Home Security Systems ............ 7,950 units
Business Security Systems ........... 3,750 units
REQUIRED
1. Allocate the support department costs to the assembly departments using a dual-rate system and
(a) The direct method,
(b) The step-down method (allocate Information Systems Support first),
(c) The step-down method (allocate Engineering Support first),
(d) The reciprocal method.
2. Compare the support department costs allocated to each Home Security Systems unit assembled and each Business Security Systems unit assembled under (a), (b), (c), and (d) in requirement 1.
3. What factors might explain the very limited adoption of the reciprocal method by many organizations?


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  • CreatedJuly 31, 2015
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