Requirements 1. Describe the key features of the reciprocal method. 2. Allocate the support departments' costs (human resources and information systems) to the two operating departments using the reciprocal method. Use (a) linear equations and (b) repeated iterations. 3. In the case presented in this exercise, which method (direct, step-down, or reciprocal) would you recommend? Why? Each sales department conducts merchandising and marketing operations independently Vision Books uses number of employees to allocate human resources costs and processing time to allocate information systems costs. The controller of Vision Books reads a widely used textbook that states that "the reciprocal method is conceptually the most defensible." He seeks your assistance. Support Departments Human Information Resources Systems Operating Departments Corporate Consumer Sales Sales $ 80,000 $ 229,000 $ 992,000 $ 484,000 Budgeted costs incurred before any interdepartment cost allocations Support work supplied by human resources department Budgeted number of employees Support work supplied by information systems department Budgeted processing time (in minutes) 20 48 32 400 2,520 1,080 HR $ Costs incurred Allocation of HR costs Allocation of Info Systems costs Total budgeted costs of operating departments Support Departments Operating Departments Info. Systems Corporate Consumer Total 80,000 $ 229,000 $ 992,000 $ 484,000 $ 1,785,000 (80,000) 48,000 32,000 (229,000) 160,300 68,700 0 $ 0 $ 1,200,300 $ 584,700 $ 1,785,000 Support Departments Operating Departments HR Info. Systems Corporate Consumer Total Costs incurred $ 80,000 $ 229,000 S 992,000 $ 484,000 $ 1,785,000 Allocation of HR costs (80,000) 16,000 38,400 25,600 $ 245,000 Allocation of Info. Systems costs (245,000) 171,500 73,500 $ 0 $ 1,201,900 $ 583,100 $ 1,785,000 Total budgeted costs of operating departments *Proportions for services provided to other support departments: human resources (HR), 0.20000, information sytems (IS). 0.10000. 0 Requirement 2. Allocate the support departments' costs (human resources and information systems) to the two operating departments using the reciprocal method. Before we can allocate the support departments' costs to the two operating departments using the reciprocal method let's first determine the linear equations for each support department. Then off-line solve for HR and IS (Information Systems), so that you may complete the allocation of the support departments' costs. (Abbreviations used: HR = human resources; IS = information system.) HR= $80,000 0.10000 IS IS- $229,000 0.20000 HR Now allocate the support departments' costs (human resources and information systems) to the two operating departments using the reciprocal method. (Round proportions to five decimal places, XXXXX, and your final answers to the nearest whole dollar. Use parentheses or a minus sign when decreasing departments by allocating costs. Enter a "0" for zero balances.) Support Deparments Operating Departments HR Info. Systems Corporate Consumer Total Costs incurred 80000 229000 992000 484000 1785000 Allocation of HR costs -105000 Allocation of Info Systems costs 25000 -250000 Total budgeted costs of operating departments 0
