QUESTION: Calculate the allocations from the support departments using the DIRECT method.
Total Tennis (TT) Corporate, in New York, has two primary service divisions, Human Resources (HR) and Information Technology (Tech). The service divisions have never been allocated to the operating divions Sales (Edinburgh, Scotland) and Production (Lucerne, Switzerland). Chris Everest, the President of T, has been reworking the performance measurement system with the input of the two operating company executives, Tom Murray (Edinburgh) and Le Federer (Lucerne), as well as consultants from the Cost 2 class at well-known USFSP. Chris: I have been reading that it makes sense to allocate costs from the corporate division to the operating entities. Le: I don't need any more costs! We don't control those costs at corporate. You can't charge us for costs we have no input for. Tom: What costs does corporate incur on our behalf? To my knowledge, we pay our own way here in Scotland. Chris: Here is a detail of what we are spending at corporate. I am trying to be transparent here; we are in this together: Human Resources: $250,000 - Researching applicable hiring laws and practices in relevant countries, identifying candidates, virtual interviewing, onboarding new hires, supervision of annual reviews, handling all terminations. Information Technology: $500,000 - Identifying new software/hardware, working with operating units and corporate personnel to implement, HELP line, designing and implementing training programs in all countries. Ensure recent new software laws between China and the US are adhered to. Legal, Accounting and President's staff - \$250,000 - all other functions Le: Well, I had no idea corporate was performing all those functions. We also interview the new hires, but I guess there is a lot of behind the scenes work related to HR. And we also have IT experts; I'm surprised you are spending so much at corporate related to systems! Can't you cut some of those costs? I guess we should be paying our fair share of those functions, but I don't want to pay more than I could hire the same functions for here. Tom: I agree, but we have our own accounting, legal and President, so I can't see paying for yours as well. How about if you allocate us our fair share of Human Resources and Information Technology, but you pay for your legal, accounting and President's staff? Chris: Okay, we will start there. I think this is a good year to begin this. We are changing the balanced scorecard so let's change the allocations too. But I have read there are several ways to allocate the costs. I think we need the help of that ace Cost Accounting II class! ACTUAL RESULTS JANUARY THROUGH JUNE 2022 Thtal The divisions have gathered the following data per your request. HR will be allocated based on the number of this exercise, ignore the "other corporate" divisions (accounting, legal, etc.) for allocations. In other words, do not allocate to or from these divisions. You gather the following information for the 12 months ended 12/31/21 : Total Tennis (TT) Corporate, in New York, has two primary service divisions, Human Resources (HR) and Information Technology (Tech). The service divisions have never been allocated to the operating divions Sales (Edinburgh, Scotland) and Production (Lucerne, Switzerland). Chris Everest, the President of T, has been reworking the performance measurement system with the input of the two operating company executives, Tom Murray (Edinburgh) and Le Federer (Lucerne), as well as consultants from the Cost 2 class at well-known USFSP. Chris: I have been reading that it makes sense to allocate costs from the corporate division to the operating entities. Le: I don't need any more costs! We don't control those costs at corporate. You can't charge us for costs we have no input for. Tom: What costs does corporate incur on our behalf? To my knowledge, we pay our own way here in Scotland. Chris: Here is a detail of what we are spending at corporate. I am trying to be transparent here; we are in this together: Human Resources: $250,000 - Researching applicable hiring laws and practices in relevant countries, identifying candidates, virtual interviewing, onboarding new hires, supervision of annual reviews, handling all terminations. Information Technology: $500,000 - Identifying new software/hardware, working with operating units and corporate personnel to implement, HELP line, designing and implementing training programs in all countries. Ensure recent new software laws between China and the US are adhered to. Legal, Accounting and President's staff - \$250,000 - all other functions Le: Well, I had no idea corporate was performing all those functions. We also interview the new hires, but I guess there is a lot of behind the scenes work related to HR. And we also have IT experts; I'm surprised you are spending so much at corporate related to systems! Can't you cut some of those costs? I guess we should be paying our fair share of those functions, but I don't want to pay more than I could hire the same functions for here. Tom: I agree, but we have our own accounting, legal and President, so I can't see paying for yours as well. How about if you allocate us our fair share of Human Resources and Information Technology, but you pay for your legal, accounting and President's staff? Chris: Okay, we will start there. I think this is a good year to begin this. We are changing the balanced scorecard so let's change the allocations too. But I have read there are several ways to allocate the costs. I think we need the help of that ace Cost Accounting II class! ACTUAL RESULTS JANUARY THROUGH JUNE 2022 Thtal The divisions have gathered the following data per your request. HR will be allocated based on the number of this exercise, ignore the "other corporate" divisions (accounting, legal, etc.) for allocations. In other words, do not allocate to or from these divisions. You gather the following information for the 12 months ended 12/31/21
