Question 1: Support Department cost allocation

Computer Horizons Ltd. manufactures computers. The company has two corporate support departments (legal and personnel) in supporting each other and two manufacturing departments, the Laptop department and the Workstation department.

The overhead costs of support departments are allocated to the manufacturing departments. Legal hours are used to allocate the cost of legal department, and personnel hours are used to allocate the cost of personnel department. The budgeted overhead costs and cost allocation bases are given below:

Support Departments Manufacturing Departments

Legal Personnel Laptop Workstation

Overhead Costs before any inter department cost allocations $9,055 $4,000 $240,000 $200,000

Support Work provided by Legal Department (Legal hours) 2 3 37 20

Support work provided by Personnel Department (Personnel hours) 40 30 200 160

Required:

Report the total costs of the manufacturing departments (Laptop and Workstation) after the support departments' (Legal and Personnel) costs have been allocated using each of the following methods:

i. Direct Method

ii. Step Down Method (allocate Legal department's cost first)

iii. Reciprocal Method