April Data

Human resources/Office services/Litigation department/Corporate department

Budgeted costs $376,200/ $629,500/ $1,170,000/$1,335,000

Actual costs $381,600/ $609,650/ $1,233,600/ $1,152,000

Actual hours of service provided 3,060 /6,000/ 5,440/ 8,500

Actual number of employees 10/21/15/24

Required:

Allocate the costs of the service departments to the production departments. The resulting schedules will include the total cost of operating the Litigation department and the Corporate department for April using the appropriate figures.

Apply the costs using the following methods:

a)The direct method

b)The reciprocal method

c)Lily Li, the controller of Chan Kwan LLP, would like your recommendation on whether they should use the Direct or Reciprocal method of support department cost allocation. Back up your recommendation with a discussion of the advantages and disadvantages of both methods and the reasons for your recommendation. Remember to use pertinent figures from your quantitative analysis.