Support department cost allocation; direct and step-down methods.

(30 minutes) Olympiakos, SA, provides outsourcing services and advice to both government and corporate clients. For costing purposes, Olympiakos classifies its departments into two support departments (Administrative/

Human Resources and Information Systems) and two operating departments

(Government Consulting and Corporate Consulting). For the first quarter of 1999, Olympiakos incurs the following costs in its four departments: lpu7

The Administrative/Human Resource support percentages are based on headcount. The Information Systems support percentages are based on actual hours of computer time used.
REQUIRED 1.
2:
3.
Allocate the two support department costs to the two operating departments using the following methods:

a. Direct method

b. Step-down method (allocate Administrative/Human Resources first)

c. Step-down method (allocate Information Systems first)
Compare and explain differences in the support department costs allocated to each operating department.
What criteria could determine the sequence for allocating support departments using the step-down method? What criterion should Olympiakos use if government consulting jobs require the step-down method?

Transcribed Image Text:

Administrative/Human Resources (A/HR) Information Systems (IS) Government Consulting (GOVT) Corporate Consulting (CORP) EUR 600,000 EUR 2,400,000 EUR 8,756,000 EUR 12,452,000 The actual level of support relationships among the four departments for the first quarter of 1999 was USED BY A/HR IS GOVT CORP SUPPLIED A/HR 25% 40% 35% BY IS 10% 30% 60%