E-books, an online book retailer, has two operating departments corporate sales and consumer salesand two support departmentshuman resources and information systems. (Click the icon to view additional information.) - X More Info Each sales department 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 controller of E-books reads a widely used textbook that states that "the reciprocal method is conceptually the most defensible." He seeks your assistance. Support Departments Operating Departments Human Information Corporate Consumer Resources Systems Sales Sales Budgeted costs incurred before any interdepartment cost allocations $ 72,700 $ 234,400 $ 998,270 $ 489,860 Support work supplied by human resources department Budgeted number of employees 21 42 28 Support work supplied by information systems department Budgeted processing time (in minutes) 320 1.920 1,600 1 Direct allocation data Costs incurred Allocation of HR costs Allocation of Info. Systems costs Total budgeted costs of operating departments Support Departments Operating Departments HR Info Systems Corporate Consumer Total $ 72,700 $ 234,400 $ 998,270 $ 489,860 $ 1.795,230 (72,700) 43,620 29,080 (234,400) 127,853 106,547 0 $ 0 $ 1.169,743 $ 625,487 $ 1,795,230 - Step-down allocation data Support Departments Operating Departments Info. HR Systems Corporate Consumer Total Costs incurred $ 72,700 $ 234,400 $ 998,270 $ 489,860 $ 1,795,230 Allocation of HR costs (72,700) 16,777 33,554 22,369 $ 251,177 Allocation of Info. Systems costs (251,177) 137,006 114,173 Total budgeted costs of $ operating departments 0 $ 1,168,830 $ 626,402 $ 1,795,230 *Proportions for services provided to other support departments: human resources (HR). 0 Requirement 1. Describe the key features of the reciprocal method. The reciprocal allocation method explicitly includes the mutual services provided Interdepartmental relationships fully incorporated into the support department cost allocations. Requirement 2. Allocate the support departments' costs (human resources and information systems) to the two operating departments using the reciprocal method. Before we can allocate the support departments' costs to the two operating departments using the reciprocal method, let's first determine the linear equations for each support department. Then off-line solve for HR and IS (Information Systems), so that you may complete the allocation of the support departments' costs. (Abbreviations used:HR = human resources; IS = information system.) HR- + IS= Now allocate the support departments' costs (human resources and information systems) to the two operating departments using the reciprocal method. (Round proportions to five decimal places, XXXXX, 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 zero balances.) Support Deparments Operating Departments HR Info. Systems Corporate Consumer Total Costs incurred Allocation of HR costs Allocation of Info Systems costs Total budgeted costs of operating departments This time, use repeated iterations. (Round proportions to five decimal places, XXXXX, and your final answers to the nearest whole dollar. Use parentheses or a minus sign when decreasing departments by allocating costs. Enter a "O" for any zero balances. Note that rounding differences may occur in the totals after allocation.) Support Departments Operating Departments Reciprocal Method Info. Systems Corporate Consumer Total Budgeted overhead costs before interdepartment cost allocations First allocation of HR costs HR First allocation of Info. Systems costs Second allocation of HR costs Second allocation of Info. Systems costs Third allocation of HR costs Third allocation of HR costs Third allocation of Info. Systems costs Fourth allocation of HR costs Fourth allocation of Info. Systems costs Total budgeted overhead of operating departments Requirement 3. In the case presented in this exercise, which method (direct, step-down, or reciprocal) would you recommend? Why? Recommendation: The because it is more accurate than the other two methods when there are mutual relationships among support departments. Why would you recommend this method? O A. It ranks support departments in the order that the allocation is to proceed and partially recognizes the mutual services provided. OB. It fully incorporates interdepartmental relationships into the support departments cost allocation. OC. It is easy to compute and understand, and being precise is not necessary