Cooper Ltd. has 2 operating divisions: domestic sales and international sales. They also have 2 support divisions: accounting support and human resources support. For the past year, Cooper’s cost records show the following information:

	Support Divisions		Operating Divisions
	Account’g Support	Human Resources Support	Domestic Sales	Inter-national Sales	Total
Budgeted costs incurred before any interdivision cost allocations	$500,000	$600,000	$8,400,000	$7,500,000	$ 17,000,000
Support work supplied by Accounting (based on # of employees)		20%	40%	40%	100%
Support work supplied by Human Resources (based on # of staffing actions)	10%		60%	30%	100%

Required:

1. Allocate the 2 support divisions’ costs to the operating divisions using the Direct Method.
2. Allocate the 2 support divisions’ costs to the operating divisions using the Reciprocal Method.
3. Allocate the 2 support divisions’ costs to the operating divisions using the Step Down Method – Allocate Accounting Support first.
4. What method do you recommend and why?

Cooper Ltd. would like to share the services of a consultant with another company, Hofstadter Inc. The consultant will work a total of 1,000 hours for both companies: 700 for Cooper and 300 hours for Hofstadter Inc. The total cost of the contract will be $368,000. If Cooper were to contract directly with the consultant for 700 hours, the cost would have been $350,000. If Hofstadter were to contract directly with the consultant, the contract would have cost them $ 150,000. How should the companies divide up the cost of the consultant?

Answer rating: 100% (QA)

Direct Method Accounting Support Domestic Sales 100000 International Sales 200000 Human Resources Su... View the full answer