Question 2: Support department cost allocation

Smith Company has two support departments, Human Resources and General Factory, and two production departments, Fabricating and Assembly.

	Support Departments		Production Departments
	Human Resources	General Factory	Fabricating	Assembly
Costs	$160,000	$340,000	$114,600	$93,000
Normal activity	---	---	---	---
Number of employees	---	60	80	170
Square footage	1,000	---	5,700	13,300

The costs of the Human Resources Department are allocated on the basis of number of employees, and the costs of General Factory are allocated on the basis of square footage.

Required: show all your workings.

I. Using the direct method, allocate the costs of the Human Resources and General Factory departments to the Fabricating and Assembly departments.

II. Using the step-down method, allocate the costs of the Human Resources and General Factory departments to the Fabricating and Assembly departments. Smith Company allocates the costs of the General Factory department first.

III. Using the reciprocal method, allocate the costs of the Human Resources and General Factory departments to the Fabricating and Assembly departments (Rround the allocation ratios to the 4 decimal places and round all costs to the nearest dollar).