Sportz, Inc., manufactures athletic shoes and athletic clothing for both amateur and professional athletes. The company has
Question:
The total costs of the support departments (IT and HR) are allocated to the production departments (clothing and shoes) using a single rate based on the following:
Information technology:..................Number of IT labor-hours worked by department
Human resources: .........................Number of employees supported by department
Data on the bases, by department, are given as follows:
Department IT Hours Used Number of Employees
Clothing............................10,080........................................440
Shoes.................................7,920.......................................176
Information technology...............-........................................184
Human resources....................6,000.........................................-
Required:
1. What are the total costs of the production departments (clothing and shoes) after the support-department costs of information technology and human resources have been allocated using (a) the direct method, (b) the step-down method (allocate information technology first), (c) the step-down method (allocate human resources first), and (d) the reciprocal method?
2. Assume that all of the work of the IT department could be outsourced to an independent company for $97.50 per hour. If Sportz no longer operated its own IT department, 30% of the fixed costs of the IT department could be eliminated. Should Sportz outsource its IT services?
Step by Step Answer:
Horngrens Cost Accounting A Managerial Emphasis
ISBN: 978-0134475585
16th edition
Authors: Srikant M. Datar, Madhav V. Rajan