Requirement 1. Describe the key features of the reciprocal method. The reciprocal allocation method explicitly includes...

    

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Requirement 1. Describe the key features of the reciprocal method. The reciprocal allocation method explicitly includes the mutual services provided among all support departments department cost allocations. . Interdepartmental relationships are fully incorporated into the support Requirement 2. Allocate the support departments' costs (human resources and information systems) to the two operating departments using the reciprocal method. Before we can allocate the support departments' costs to the two operating departments using the reciprocal method, let's first determine the linear equations for each support department. Then off-line solve for HR and IS (Information Systems), so that you may complete the allocation of the support departments' costs. (Abbreviations used: HR = human resources; IS = information system.) HR=$90,000 IS= More info Each sales department conducts merchandising and marketing operations independently. O - books uses number of employees to allocate human resources costs and processing time to allocate information systems costs. The controller of O books reads a widely used textbook that states that "the reciprocal method is conceptually the most defensible." He seeks your assistance. Data table A B C D E SUPPORT OPERATING 1 DEPARTMENTS DEPARTMENTS Human Information 2 Budgeted costs incurred before any 3 interdepartment cost allocations Support work supplied by human 4 resources department LO 5 Budgeted number of employees Support work supplied by information 6 systems department Resources Systems Corporate Consumer Sales Sales EA 90,000 $ 227,000 $ 990,000 $ 484,000 0 20 48 32 Budgeted processing time (in 7 minutes) 400 0 2,160 1,440 Direct allocation data Support Departments Operating Departments HR Info. Systems Corporate Costs incurred $ 90,000 $ 227,000 $ Consumer 990,000 $ 484,000 $ 1,791,000 Total Allocation of HR costs (90,000) Allocation of Info. Systems costs (227,000) 54,000 136,200 36,000 90,800 $ 0 $ 0 $ 1,180,200 $ 610,800 $ 1,791,000 Total budgeted costs of operating departments Step-down allocation data Costs incurred Allocation of HR costs Allocation of Info. Systems costs Support Departments Operating Departments HR Info. Systems Corporate Consumer Total $ 90,000 $ 227,000 $ 990,000 $ 484,000 $ 1,791,000 (90,000) 18,000 43,200 28,800 $ 0 245,000 (245,000) 147,000 98,000 $ Total budgeted costs of operating departments 0 $ 1,180,200 $ 610,800 $ 1,791,000 *Proportions for services provided to other support departments: human resources (HR), 0.20000; information sytems (IS), 0.10000. Requirements 1. Describe the key features of the reciprocal method. 2. Allocate the support departments' costs (human resources and information systems) to the two operating departments using the reciprocal method. Use (a) linear equations and (b) repeated iterations. 3. In the case presented in this exercise, which method (direct, step-down, or reciprocal) would you recommend? Why? Requirement 1. Describe the key features of the reciprocal method. The reciprocal allocation method explicitly includes the mutual services provided among all support departments department cost allocations. . Interdepartmental relationships are fully incorporated into the support Requirement 2. Allocate the support departments' costs (human resources and information systems) to the two operating departments using the reciprocal method. Before we can allocate the support departments' costs to the two operating departments using the reciprocal method, let's first determine the linear equations for each support department. Then off-line solve for HR and IS (Information Systems), so that you may complete the allocation of the support departments' costs. (Abbreviations used: HR = human resources; IS = information system.) HR=$90,000 IS= More info Each sales department conducts merchandising and marketing operations independently. O - books uses number of employees to allocate human resources costs and processing time to allocate information systems costs. The controller of O books reads a widely used textbook that states that "the reciprocal method is conceptually the most defensible." He seeks your assistance. Data table A B C D E SUPPORT OPERATING 1 DEPARTMENTS DEPARTMENTS Human Information 2 Budgeted costs incurred before any 3 interdepartment cost allocations Support work supplied by human 4 resources department LO 5 Budgeted number of employees Support work supplied by information 6 systems department Resources Systems Corporate Consumer Sales Sales EA 90,000 $ 227,000 $ 990,000 $ 484,000 0 20 48 32 Budgeted processing time (in 7 minutes) 400 0 2,160 1,440 Direct allocation data Support Departments Operating Departments HR Info. Systems Corporate Costs incurred $ 90,000 $ 227,000 $ Consumer 990,000 $ 484,000 $ 1,791,000 Total Allocation of HR costs (90,000) Allocation of Info. Systems costs (227,000) 54,000 136,200 36,000 90,800 $ 0 $ 0 $ 1,180,200 $ 610,800 $ 1,791,000 Total budgeted costs of operating departments Step-down allocation data Costs incurred Allocation of HR costs Allocation of Info. Systems costs Support Departments Operating Departments HR Info. Systems Corporate Consumer Total $ 90,000 $ 227,000 $ 990,000 $ 484,000 $ 1,791,000 (90,000) 18,000 43,200 28,800 $ 0 245,000 (245,000) 147,000 98,000 $ Total budgeted costs of operating departments 0 $ 1,180,200 $ 610,800 $ 1,791,000 *Proportions for services provided to other support departments: human resources (HR), 0.20000; information sytems (IS), 0.10000. Requirements 1. Describe the key features of the reciprocal method. 2. Allocate the support departments' costs (human resources and information systems) to the two operating departments using the reciprocal method. Use (a) linear equations and (b) repeated iterations. 3. In the case presented in this exercise, which method (direct, step-down, or reciprocal) would you recommend? Why?