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Problem 7-39 Departmental Cost Allocation Data Performance, a computer software consulting company, has three major functional areas: computer programming, information systems consulting, and software training.
Problem 7-39 Departmental Cost Allocation Data Performance, a computer software consulting company, has three major functional areas: computer programming, information systems consulting, and software training. Carol Bingham, a pricing analyst, has been asked to develop total costs for the functional areas. These costs will be used as a guide in pricing a new contract. In computing these costs, Carol is considering three different methods of the departmental allocation approach to allocate overhead costs: the direct method, the step method, and the reciprocal method. She assembled the following data from the two service departments, information systems and facilities. Data Budgeted overhead Info. Systems (hours)* Facilities (sq ft)** Service Departments Production Departments Computer Info. Systems software Info Systems Facilities programming consulting training $80,000 $40,000 $160,000 $190,000 $125,000 600 1,200 300 900 240 960 600 600 Total $595,000 3,000 2,400 * Allocated on the basis of hours of computer usage. ** Allocated on the basis of floor space. Required: Use 4 or more decimal places (e.g., 33.3333%) in your calculations. a. 1. Using as the allocation base computer usage time for the information systems department and square feet of floor space for the facilities department, apply overhead from these service departments to the production departments, using these three methods. Use Exeet and Solver to determine the allocations. Direct method b. Step method c. Reciprocal method 2. Rather than allocate costs based on computer and floor space usage, how might Data Performance better assign the information systems department's costs
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