Problem 1 Nokia Inc. has two user departments, Wireless Communications & Digital

Question

Problem 1

Nokia Inc. has two user departments, Wireless Communications & Digital Communications. The two support departments are Technical Support (TS) & Research & Development (R&D). The costs incurred in each of these departments are as follows:

Wireless Communications

$110,000

Digital Communications

$60,000

TS

$80,000

R&D

$90,000

The actual level of support is as follows:

Supplied by

Used by

TS

R&D

Wireless

Digital

TS

20%

50%

30%

R&D

30%

25%

45%

Determine the cost allocated to:

Wireless Communications using the direct method

Digital Communications using the direct method

Wireless Communications using the step-down method (allocating TS first)

Wireless Communications using the step-down method (allocating R&D first)

Wireless Communications using the reciprocal method

Digital Communications using the reciprocal method

Wireless Communications

$110,000

Digital Communications

$60,000

TS

$80,000

R&D

$90,000

Explanation / Answer

Answer:1 Wireless Communications using the direct method:

Digital Communications using the direct method

Wireless Communications using the step-down method (allocating TS first):

Wireless Communications using the step-down method (allocating R&D first):

Departments Providing service Cost to be allocated Department using service Wireless Digital TS 80000 50000 (50/80) 30000 (30/80) R&D 90000 32143 (25/70) 57857 (45/70) Total 170000 82143 87857

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