Consider E-books again. The controller of E-books reads a widely used textbook that states the reciprocal method

Consider E-books again. The controller of E-books reads a widely used textbook that states €œthe reciprocal method is conceptually the most defensible.€ He seeks your assistance.
In exercise
E-books, an online book retailer, has two operating divisions€”Corporate Sales and Consumer Sales€”and two support divisions€”Human Resources and Information Systems. Each sales division conducts merchandising and marketing operations independently. E-books uses number of employees to allocate Human Resources costs and processing time to allocate Information Systems costs. The following data are available for September 2014:

REQUIRED
1. Describe the key features of the reciprocal method.
2. Allocate the support divisions€™ costs (Human Resources and Information Systems) to the two operating divisions using the reciprocal method.
3. In the case presented in this exercise, which method (direct, step-down, or reciprocal) would you recommend? Why?

Transcribed Image Text:

Support Divisions Operating Divisions Human Resources Information Corporate Lonsumer Systems Sales Sales Budgeted costs incurred $72,700 $234,400 %998,270 S489,860 before any interdivision cost allocations Support work supplied by Human Resources Division 42 Budgeted number of employees Support work supplied by 21 28 formation Systems Division Budgeted processing time (in minutes) 320 1,920 1,600