Comfort Limited manufactures athletic shoes and athletic clothing for both amateur and professional athletes. The company...

   

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Comfort Limited manufactures athletic shoes and athletic clothing for both amateur and professional athletes. The company has two product lines (clothing and shoes), which are produced in separate manufacturing facilities; however, both manufacturing facilities share the same support services for information technology and human resources. The following shows total costs for each manufacturing facility and for each support department. Information technology (IT) Human resources (HR) Clothing Shoes Total costs Information technology: Human resources: Variable Costs $ 6,000 4,000 25,000 30,000 $ 65,000 Department Clothing Shoes Information technology Human resources Fixed Costs $ 20,000 10,000 80,000 45,000 $155,000 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: Data on the bases, by department, are given as follows: IT Hours Used 5,040 3,960 3,000 Total Costs by Department (in thousands) $ 26,000 14,000 105,000 75,000 $ 220,000 Number of IT labor-hours worked by department Number of employees supported by department Number of Employees 220 88 92 Required: (b) Determine 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 (i) the step-down method (allocate information technology first) (ii) the step-down method (allocate human resources first) (iii) the reciprocal method Assume that all of the work of the IT department could be outsourced to an independent company for $975 per hour. If Comfort Ltd no longer operated its own IT department, 30% of the fixed costs of the IT department could be eliminated. Advise whether Comfort should outsource its IT services. Comfort Limited manufactures athletic shoes and athletic clothing for both amateur and professional athletes. The company has two product lines (clothing and shoes), which are produced in separate manufacturing facilities; however, both manufacturing facilities share the same support services for information technology and human resources. The following shows total costs for each manufacturing facility and for each support department. Information technology (IT) Human resources (HR) Clothing Shoes Total costs Information technology: Human resources: Variable Costs $ 6,000 4,000 25,000 30,000 $ 65,000 Department Clothing Shoes Information technology Human resources Fixed Costs $ 20,000 10,000 80,000 45,000 $155,000 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: Data on the bases, by department, are given as follows: IT Hours Used 5,040 3,960 3,000 Total Costs by Department (in thousands) $ 26,000 14,000 105,000 75,000 $ 220,000 Number of IT labor-hours worked by department Number of employees supported by department Number of Employees 220 88 92 Required: (b) Determine 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 (i) the step-down method (allocate information technology first) (ii) the step-down method (allocate human resources first) (iii) the reciprocal method Assume that all of the work of the IT department could be outsourced to an independent company for $975 per hour. If Comfort Ltd no longer operated its own IT department, 30% of the fixed costs of the IT department could be eliminated. Advise whether Comfort should outsource its IT services.

Answer rating: 100% (QA)

a Direct Method Clothing Shoes Variable cost 2500 3000 Fixed cost 8000 4500 IT Based on No of IT lab... View the full answer