Cost records:
Direct method:
Step down method (AS) first:
Step down method (IS) first:
Summary:
Phoenix Partners provides management consulting services to government and corporate clients. Phoenix has two support departmentsadministrative services (AS) and information systems (IS)and two operating departments-government consulting (GOVT) and corporate consulting (CORP). For the first quarter of 2017, Phoenix's cost records indicate the following: (Click the icon to view the cost records.) SUPPORT AS IS OPERATING GOVT CORP Total 600,000 $ 2,400,000 $ 8,756,000 $ 12,452,000 $ 24,208,000 Budgeted overhead costs before any interdepartment cost allocations Support work supplied by AS (budgeted head count) Support work supplied by IS (budgeted computer time) 0 25% 40% 35% 100% 10% 0 30% 60% 100% The two support departments' costs have been allocated to the two operating departments using the direct method and the step-down method (AS department first) and the step-down method (IS department first). The results of the allocations are as follows: (Click the icon to view the direct method.) (Click the icon to view the step-down method (AS first).) (Click the icon to view the step-down method (IS first).) (Click the icon to view a summary of the three methods.) Support Departments Operating Departments AS IS GOVT CORP Total Direct Method Budgeted overhead costs before interdepartment cost allocations Allocation of AS costs Allocation of IS costs $ 600,000 $ 2,400,000 $ 8,756,000 $ 12,452,000 $ 24,208,000 (600,000) 320,000 280,000 (2,400,000) 800,000 1,600,000 Total budgeted overhead of operating departments 0 $ 0 $ 9,876,000 $ 14,332,000 $ 24,208,000 Support Departments Operating Departments AS IS GOVT CORP Total Step-down Method Budgeted overhead costs before interdepartment cost allocations Allocation of AS costs 600,000 $ 2,400,000 $ 8,756,000 $ 12,452,000 $ 24,208,000 (600,000) 150,000 240,000 210,000 2,550,000 (2,550,000) 850,000 1,700,000 $ 0 Allocation of IS costs Total budgeted overhead of operating departments 0 $ 9,846,000 $ 14,362,000 $ 24,208,000 Support Departments Operating Departments AS IS GOVT CORP Total Step-down Method Budgeted overhead costs before interdepartment cost allocations Allocation of IS costs $ $ 600,000 $ 2,400,000 $ 8,756,000 $ 12,452,000 $ 24,208,000 240,000 (2,400,000) 720,000 1,440,000 $ 0 840,000 (840,000) 448,000 392,000 $ 9,924,000 $ 14,284,000 $ 24,208,000 Allocation of AS costs 0 Total budgeted overhead of operating departments i Reference CORP Direct method Step-down (AS first) Step-down (IS first) GOVT 1,120,000 $ 1,090,000 1,168,000 1,880,000 1,910,000 1,832,000 Requirement 1a. Allocate the two support departments' costs to the two operating departments using the reciprocal method. First, determine the linear equations for each support department. AS= $600,000 + 0.10 IS IS $2,400,000 + 0.25 AS Now allocate the support departments' costs (AS and IS department costs that you determined in the prior step) to the two operating departments using the reciprocal method. (Round decimal calculations to three decimal places, XXX, and your final answers to the nearest whole dollar. Use parentheses or a minus sign when decreasing departments by allocating costs. Enter a "0" for any zero balances.) Support Departments Operating Departments AS IS GOVT CORP Total Reciprocal Method Budgeted overhead costs before interdepartment cost allocations Allocation of AS costs Allocation of IS costs 600000 2400000 8756000 12452000 24208000 Total budgeted overhead of operating departments
