Question
Sportz, Inc., manufactures athletic shoes and athletic clothing for both amateur and professional athletes. The company has two product lines (clothing and shoes), which are
Sportz, Inc., manufactures athletic shoes and athletic clothing for both amateur and professional athletes. The company has two product lines (clothing and shoes), which are produced in separate manufacturing facilities; however, both manufacturing facilities share the same support services for information technology and human resources. The following shows costs (in thousands) for each manufacturing facility and for each support department.
The total costs of the support departments (IT and HR) are allocated to the production departments (clothing and shoes) using a single rate based on the following:
Information technology: | Number of IT labor-hours worked by department |
Human resources: | Number of employees supported by department |
Data on the bases, by department, are given as follows:
Required:
What are the total costs of the production departments (clothing and shoes) after the support-department costs of information technology and human resources have been allocated using
(a) the direct method (2 marks)
(b) the step-down method (allocate information technology first) (2 marks)
(c) the step-down method (allocate human resources first) (3 marks)
(d) the reciprocal method (3 marks)
Total Costs by Department Fixed Costs $ 4,000 Information technology (IT) Human resources (HR) Clothing Shoes Total costs Variable Costs $ 1,200 800 5,000 6,000 $13,000 16,000 9,000 $31,000 2,800 21,000 15,000 $44,000 Department Clothing Shoes Information technology Human resources IT Hours Used 10,080 7,920 Number of Employees 440 176 184 6,000Step by Step Solution
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