Part II Sally divides her candies into two main operating divisions: Jumbo Sour Keys and Mini Sour Keys. Sally has two support divisions, human resources and plant maintenance. Each operating division conducts merchandising and marketing operations independently. Sally uses number of employees to allocate human resources costs and square footage to allocate maintenance costs. The following data is available for July 2020: Support Divisions Operating Divisions Human Plant Jumbo Sour Mini Sour Resources Maintenance Keys Keys Budgeted costs incurred before any interdivision cost allocations $57,600 $165,900 $695,800 $341,600 Support work supplied by human resources division Budgeted number of 27 employees Support work supplied by plant maintenance division Budgeted square footage 456 2,616 2,160 51 26 - Required 1. Allocate the support divisions' costs to the operating divisions using the reciprocal method. (7 marks) 2. Sally's maintenance and HR departments are questioning her cost allocation methods. The reciprocal method was inherited from Sally's former accountant, and she is unaware of any other way! a. Is the method you used in part 1 the most appropriate option for Sally to apply when assigning support costs? Help Sally understand the pros and cons of this cost allocation method and present her with some alternative options. (4 marks) b. Detail a process Sally could apply to decide which method is best for her business. Do not detail how Sally could apply the new method; walk her through the decision-making process. (4 marks) Part II Sally divides her candies into two main operating divisions: Jumbo Sour Keys and Mini Sour Keys. Sally has two support divisions, human resources and plant maintenance. Each operating division conducts merchandising and marketing operations independently. Sally uses number of employees to allocate human resources costs and square footage to allocate maintenance costs. The following data is available for July 2020: Support Divisions Operating Divisions Human Plant Jumbo Sour Mini Sour Resources Maintenance Keys Keys Budgeted costs incurred before any interdivision cost allocations $57,600 $165,900 $695,800 $341,600 Support work supplied by human resources division Budgeted number of 27 employees Support work supplied by plant maintenance division Budgeted square footage 456 2,616 2,160 51 26 - Required 1. Allocate the support divisions' costs to the operating divisions using the reciprocal method. (7 marks) 2. Sally's maintenance and HR departments are questioning her cost allocation methods. The reciprocal method was inherited from Sally's former accountant, and she is unaware of any other way! a. Is the method you used in part 1 the most appropriate option for Sally to apply when assigning support costs? Help Sally understand the pros and cons of this cost allocation method and present her with some alternative options. (4 marks) b. Detail a process Sally could apply to decide which method is best for her business. Do not detail how Sally could apply the new method; walk her through the decision-making process. (4 marks)
