Problem 7-39 Departmental Cost Allocation [LO 7-3, 7-4, 7-5]

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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:

	Service Departments			Production Departments
	Information Systems	Facilities	Computer Programming	Information Systems Consulting	Software Training	Total
Budgeted overhead (base)	$70,000	$50,000	$141,000	$198,000	$139,000	$598,000
Information Systems (computer hours)		1,600	800	1,600	4,000	8,000
Facilities (square feet)	240		720	720	720	2,400

Part 1

Required:

1. Using computer usage time as the allocation base for the information systems department and square feet of floor space as the application base for the facilities department, apply overhead from these service departments to the production departments, using these three methods:

a. Direct method.

b. Step method (both for the information systems department going first and for the facilities department going first).

c. Reciprocal method.

(Round percentage calculations to 4 decimal places (e.g., 33.3333%). For all requirements, Do not round your intermediate calculations. Round your final answers to nearest whole dollar amount.)