Question 3 SUPPORT DEPARTMENT ALLOCATIONS (17 MARKS) Dunedin Audit Partners (DAP) has two operating departments that provide different types of audits to clients; that is, environmental audits and financial audits. Each of these departments conducts its operations independently. The Environmental Audit department commenced services in 2016 and has 6 staff and 1 partner whereas the more established Financial Audit department has 14 staff and 2 partners. In 2018, staff were paid salaries averaging $80,000 per annum per staff member and partners were each paid $170,000 per annum. The Environmental Audit department carried out 15 audits during the year whereas the Financial Audit department carried out 33 audits over the same period. DAP has two support departments (Human Resources (HR) and Information Technology (IT)) that provide support to the revenue generating departments. DAP uses the number of HR hours to allocate HR costs and the hours of IT processing time to allocate IT costs. Data for 2018 are available in Exhibit 4. Exhibit 4 Overhead costs for DAP for 2018 Support Departments Operating Departments Human Information Environmental Financial Resource Technology Audit Audit Department Department Department Department Overhead costs before $175,000 $350,000 $675,000 $480,000 any interdepartmental allocations ($) Support work supplied 0% 47% 44% by HR (% of HR hours) Support work supplied 12% 0% 64% 24% by IT (% of IT processing time) 9% Required: (a) Allocate the support departments' costs to the two operating departments using the step-down method, allocating the HR costs first (5 marks) (b) An alternative method for allocating support departments' costs to the operating departments is the reciprocal services method. Calculate the total overhead for each of the operating departments, if the reciprocal services method was used to allocate the support department costs. Define any variables that you use. (9 marks) (c) Assuming DAP uses the reciprocal services method to allocate support department costs, what is the average cost of an audit job in each operating department in 2018. (3 marks) TURN OVER