15 19 Support department cost allocation; direct and step down methods. Phoenix Pa rtners provides management consultin g servic es to g overnment a nd corpora te clients. Phoenix h a s two support departments”administrative services (AS) and information systems (IS)”and two operating departments” government consulting (GOVT) and corporate consulting (CORP). For the first quarter of 201 2, Phoenix’s cost records ind ica te the following:
| Support | Operating | |||||||
| AS | IS | GOVT | CORP | total | ||||
| Budgeted overhead costs before any interdepartment cost allocations | ||||||||
| $ 60,000 | $2,400,000 | $ 8,756,000 | $ 12,452,000 | $ 24,206,000 | ||||
| Support work supplied by AS (budgeted head count) | ||||||||
| 25% | 40% | 35% | 100% | |||||
| Support work supplied by IS (budgeted computer time) | ||||||||
| 10% | 30% | 60% | 100% | |||||
1 . Allocate the two support departments’ costs to the two operating departments using the following methods:
a. Direct method
b. Step down method (allocate AS first)
c. Step down method (allocate IS first)
2. Compare and explain differences in the support department costs allocated to each operating department.
3. What approaches might be used to decide the sequence in which to allocate support departments
when using the step down method?
|
Support |
Operating |
|||||||
|
AS |
IS |
GOVT |
CORP |
total |
||||
|
Budgeted overhead costs before any interdepartment cost allocations |
||||||||
|
$ 60,000 |
$2,400,000 |
$ 8,756,000 |
$ 12,452,000 |
$ 24,206,000 |
||||
|
Support work supplied by AS (budgeted head count) |
||||||||
|
25% |
40% |
35% |
100% |
|||||
|
Support work supplied by IS (budgeted computer time) |
||||||||
|
10% |
30% |
60% |
100% |
|||||