P 8-30: Sydney Mira Sydney Mira provides two financial services through two sepa
ID: 2537858 • Letter: P
Question
P 8-30: Sydney Mira Sydney Mira provides two financial services through two separate operating divisions (O1 and O2) These two operating divisions require the services of three internal service departments (S1, S2, and S3). The costs of the three service departments last month and the use of each service department by the two operating divisions are: S1 S2 S3 $500 Service Department cost (000s) Service units used by Ol 02 70 90 Each service department (S1, S2, and S3) meters the use of its services to other service depart ments and operating divisions (O1 and O2) in Sydney Mira via "service units." Each of the three service departments has a different method of determining service units it supplies, but collectively all three service departments report service units and these service units are used to allocate the ser- vice departments' costs to the users of the service department. For example, service department S1 provided 70 servic e units to operating division O1 last month. In addition to providing services to the two operating divisions, O1 and O2, the service depart- ments provide services to the other service departments. The following table summarizes the service units consumed last month by the service departments. Si S2 use use use 20 15 40 Last month, S2 used 50 service units supplied by S1, and S1 used 20 service units supplied by S2 Required. Using the direct allocation method, calculate the allocated cost per service unit provided by S1, S2, and S3 Using the direct allocation method, calculate the costs of S1, S2, and S3 that are allocated to O1 and 02. Using the step-down allocation method, calculate the allocated cost per service unit pro- vided by S1, S2, and S3. The order of the departments in the step-down is S1 first, S2 sec- ond, and S3 last. a. b. c. Cost Allocation: Practices 385 d. Using the step-down allocation method, calculate the costs of S1, S2, and S3 that are allocated to Ol and O2. The order of the departments in the step-down is S1 first, S2 second, and S3 last. e. Using the step-down allocation method, calculate the allocated cost per service unit pro- vided by SI, S2, and S3. The order of the departments in the step-down is S3 first, S2 sec ond, and S1 last. f. Using the step-down allocation method, calculate the costs of S1, S2, and S3 that are allocated to OI and O2-The order of the departments in the step-down is S3 first, S2 second, and SI last. Discuss the advantages and disadvantages for Sydney Mira of using the direct alloca- tion method, the step-down method (S1 first, S2 second, and S3 last), and the step-down method (S3 first, S2 second, and S1 last) g.Explanation / Answer
Solution a&b:
Solution c&d:
From Computation of allocated cost per service unit and Service Department Cost Allocation - Direct Method (In '000) S1 S2 S3 O1 O2 Service Department Cost $400.00 $500.00 $600.00 Number of service unit provided to operating departments 160 140 130 Allocation cost per service unit (Service Department Cost / Number of service unit) $2.50 $3.57 $4.62 Allocation of S1 cost to operating department (7:9) -$400.00 $175.00 $225.00 Allocation of S2 cost to operating department (6:8) -$500.00 $214.29 $285.71 Allocation of S3 cost to operating department (8:5) -$600.00 $369.23 $230.77 Total $0.00 $0.00 $0.00 $758.52 $741.48Related Questions
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