Sales Cost of sales Gross Margin Selling expenses General and Admin ACTUAL RESULTS JANUARY THROUGH JUNE 2021 China London New York 18,000,000 20,000,000 0 12,000,000 12,000,000 0 6,000,000 8,000,000 0 350,000 5,000,000 1,600,000 500,000 1,000,000 Total IT 38,000,000 24,000,000 14,000,000 5,350,000 3,100,000 Operating Income 4,050,000 2,500,000 (1,000,000) 5,550,000 Total Assets 30,000,000 18,200,000 1,800,000 50,000,000 The divisions have gathered the following data per your request. HR will be allocated based on the number of employees and Tech will be allocated based on the number of software packages run at each location. Forpu 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 12/31/20 Human Resources Information Technology London China # of employees 30 50 100 200 # of software packages run 75 450 175 600 Required: A) Calcuate the allocations from the support departments using the following methods: 1) Direct method 2) Step-down method with Human Resources allocated first; 3) Reciprocal method. B) Produce divisional financial statements for each method. Format should be: HR Tech Other corporate London China Total Company Revenues Costs + Allocations in - Allocations out Net profit C) Which method do you propose the company adopt and why? This is your conclusion. Sales Cost of sales Gross Margin Selling expenses General and Admin ACTUAL RESULTS JANUARY THROUGH JUNE 2021 China London New York 18,000,000 20,000,000 0 12,000,000 12,000,000 0 6,000,000 8,000,000 0 350,000 5,000,000 1,600,000 500,000 1,000,000 Total IT 38,000,000 24,000,000 14,000,000 5,350,000 3,100,000 Operating Income 4,050,000 2,500,000 (1,000,000) 5,550,000 Total Assets 30,000,000 18,200,000 1,800,000 50,000,000 The divisions have gathered the following data per your request. HR will be allocated based on the number of employees and Tech will be allocated based on the number of software packages run at each location. Forpu 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 12/31/20 Human Resources Information Technology London China # of employees 30 50 100 200 # of software packages run 75 450 175 600 Required: A) Calcuate the allocations from the support departments using the following methods: 1) Direct method 2) Step-down method with Human Resources allocated first; 3) Reciprocal method. B) Produce divisional financial statements for each method. Format should be: HR Tech Other corporate London China Total Company Revenues Costs + Allocations in - Allocations out Net profit C) Which method do you propose the company adopt and why? This is your conclusion
