[The following information applies to the questions displayed below.] Data Perfo

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[The following information applies to the questions displayed below.] Data Performance, a computer software consulting company, has three major functional areas: computer programming information systems consulting, and software training. Carol Bingham, a pricing analyst, has been asked to develop total costs for the functional areas. These costs will be used as a guide in pricing a new contract. In computing these costs Carol is considering three different methods of the departmental allocation approach to allocate overhead costs: the direct method, the step method, and the reciprocal method. She assembled the following data from the two service departments, information systems and facilities Service Departments Production Departments Information Systems Information Systems Software Facilities Programming Consulting Training Computer Total Budgeted overhead (base) Information Systems (computer hours) Facilities (square feet) $48,000 400 $152,000 200 270 $197,000 400 270 $134,000 $613,000 2,000 2,700 1,000 1,890 270 Part 1 Required 1. Using computer usage time as the allocation base for the information systems department and square feet of floor space as the application base for the facilities department, apply overhead from these service departments to the production departments, using these three methods a. Direct method b. Step method (both for the information systems department going first and for the facilities department going first) c. Reciprocal methood (Round percentage calculations to 4 decimal places (e.g., 33.3333%). For all requirements, Do not round your intermediate calculations. Round your final answers to nearest whole dollar amount.) Programming Consulting Training Total a. Direct Method Step Method (Information Systems Goes First) Step Method (Facilities Goes First) C. Reciprocal method

Explanation / Answer

Programming Consulting Training Total a Direct Method $167,583 $222,833 $222,583 $613,000 b Step Method (Information systems goes first) $167,356 $220,556 $225,089 $613,000 Step Method (Facilities goes first) $167,650 $223,500 $221,850 $613,000 c Reciprocal Method $167,429 $221,286 $224,286 $613,000 Allocation of overheads a Direct method Service Departments Production Departments Information system Facilities Computer Programming Information Systems Consulting Software Training Total Budgeted Overheads $82,000 $48,000 $152,000 $197,000 $134,000 $613,000 Information system overhead allocation ($82,000) $10,250 $20,500 $51,250 $0 Facilities overhead allocation ($48,000) $5,333.33 $5,333.33 $37,333.33 $0 $167,583 $222,833 $222,583 $613,000 Production Departments Computer Programming Information Systems Consulting Software Training Total Computer usage time 200 400 1000 1600 Percentage of usage 12.50% 25.00% 62.50% Square feet 270 270 1890 2430 Percentage of floor space 11.1111% 11.1111% 77.7778% b Step method Information system department going first Service Departments Production Departments Information system Facilities Computer Programming Information Systems Consulting Software Training Total Budgeted Overheads $82,000 $48,000 $152,000 $197,000 $134,000 $613,000 Information system overhead allocation ($82,000) $16,400 $8,200 $16,400 $41,000 $0 Facilities overhead allocation ($64,400) $7,155.56 $7,155.56 $50,088.89 $0 $167,356 $220,556 $225,089 $613,000 Production Departments Facilities Computer Programming Information Systems Consulting Software Training Total Computer usage time 400 200 400 1000 2000 Percentage of usage 20.00% 10.00% 20.00% 50.00% Square feet 270 270 1890 2430 Percentage of floor space 11.1111% 11.1111% 77.7778% Facilities Department going first Service Departments Production Departments Information system Facilities Computer Programming Information Systems Consulting Software Training Total Budgeted Overheads $82,000 $48,000 $152,000 $197,000 $134,000 $613,000 Facilities overhead allocation $4,800 ($48,000) $4,800 $4,800 $33,600 $0 Information system overhead allocation ($86,800) $10,850.00 $21,700.00 $54,250.00 $0 $167,650 $223,500 $221,850 $613,000 Production Departments Information system Computer Programming Information Systems Consulting Software Training Total Computer usage time 200 400 1000 1600 Percentage of usage 12.50% 25.00% 62.50% Square feet 270 270 270 1890 2700 Percentage of floor space 10% 10% 10% 70% c Reciprocal method Original cost of service departments Information system (X) $82,000 Facilities (Y) $48,000 After getting the share from distribution of service department X = $82000 + 10% Y Y = $48000 + 20% X By putting the value of facilities in equation (1) X = $82000+10% ($48000 +20%X) X = $82000+ $4800 + 0.02X X-0.02X = $86800 0.98 x = $86800 X = $86800/0.98 = $88571.43 By putting the value of information system in Equation (2) Y = $48000 + 20% ($88571.43) Y = $48000 + 17714.28 Y = 65714.28 Service Departments Production Departments Information system Facilities Computer Programming Information Systems Consulting Software Training Total Budgeted Overheads $82,000 $48,000 $152,000 $197,000 $134,000 $613,000 Information system overhead allocation ($88,571) $17,714 $8,857 $17,714 $44,286 $0 Facilities overhead allocation 6571.43 ($65,714) $6,571.43 $6,571.43 $46,000.00 $0 $167,429 $221,286 $224,286 $613,000

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