Acc203: Managerial Accounting

Gerry & Co ("GC") is a small bakery chain with four outlets in Singapore. Its first retail outlet also serves as its corporate office, and is located in an old shop house along Sims Road. The corporate office consists of two departments: Admin and Innovation. Currently, the admin department provides its services to other departments and retail outlets, and allocates its costs to these departments and retail outlets based on headcount. On the other hand, the innovation department which supports only the retail outlets, allocates its costs to retail outlets based on the annual sales dollars of each outlet. The following table shows the annual budgets of each support department, the headcount for each department and the annual sales for each retail outlet.

	Headcount	Annual budget	Annual sales
Admin	10	$350,000	-
Innovation	10	$500,000	-
Retail outlet 1	10	-	$325,000
Retail outlet 2	10	-	$275,000
Retail outlet 3	10	-	$175,000
Retail outlet 4	10	-	$225,000
Total	60		$1,000,000

Required:

Required:

1. Compute the allocated support department costs for each retail outlet (1 to 4) using the direct method. (8 marks)
2. Without performing any calculation, explain which support department should be allocated first in a step down approach. (4 marks)
3. Ignoring your answer in part (i), calculate the support departments costs to each retail outlet using the step down approach beginning with the admin department (provide your final answer to the nearest dollar). (8 marks)

4. Discuss if you would recommend that GC use the reciprocal method to allocate support departments' costs (5 marks)