Question
The Dylap Corporation has two service centers: IS (information systems) and accounting. The service centers provide services to one another as well as to the
The Dylap Corporation has two service centers: IS (information systems) and accounting. The service centers provide services to one another as well as to the three operating divisions: Dysap, Dynap and Dycap. The distribution of each service centers output as well as its costs (in millions) is given as follows:
Fraction of Service Center Output Used |
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| Dysap | Dynap | Dycap | Total |
| IS | Accounting | Division | Division | Division | Cost |
IS | 0.15 | 0.22 | 0.23 | 0.15 | 0.25 | $17.3 |
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Accounting | 0.04 | 0.16 | 0.38 | 0.27 | 0.15 | $8.7 |
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| $26.0 |
1. Utilizing the Direct Allocation Method with revised shares, how much of the IS and Accounting Department costs would be allocated to the operating divisions?
2. Utilizing the Step Down Allocation method with IS first, how much of the IS and Accounting Department costs would be allocated to the operating divisions?
3. Assuming you are negotiating on behalf of the Dynap Division, which allocation method would you suggest Dylap Corporation utilize to allocate service center costs to operating divisions and why? What specific points would you offer to persuade the CEO of Dylap Corporation to select the allocation method you advocate?
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