COMPARISON OF METHODS OF ALLOCATION Homestead Pottery, Inc., is divided into two operating divisions: pottery and retail. The company allocates power and human resources department costs to each operating division. Power costs are allocated on the basis of the number of machine hours and human resources costs on the basis of the number of employees. No effort is made to separate fixed and variable costs; however, only budgeted costs are allocated. Allocations for the coming year are based on the following data:
|
|
Support Departments |
Operating Divisions |
||
|
|
Power |
Human Resources |
Pottery |
Retail |
|
Overhead costs |
$100,000 |
$205,000 |
$80,000 |
$50,000 |
|
Machine hours |
2,000 |
2,000 |
3,000 |
5,000 |
|
Number of employees |
20 |
60 |
60 |
80 |
Required:
1. Allocate the support service costs using the direct method.
2. Allocate the support service costs using the sequential method.
3. Allocate the support service costs using the reciprocal method.