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Accounting
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Saudi electronic university
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Q 1 The accountant for Kadhim Inc. is preparing the budgets for operating department support
service costs. Maintenance costs are allocated based on square feet, and cafeteria costs are
allocated based on number of employees. The following data have been collected:
Support Departments Operating Departments
Maintenance Cafeteria Cutting Packaging
Direct costs SAR50,000 SAR45,000 SAR275,000 SAR300,000
Number of employees 15 10 150 250
Square feet 1,500 2,000 3,500 4,000
Support Departments
Operating Department
Maintenance
Cafeteria
Cutting
Total
Departmental Costs
$50,000
$45,000
$275,000
$575,000
Allocation
Maintenance (Ratio
of 3500:4000)
-$50,000
$23,333
$50,000
Cafeteria (Ratio of
150:250)
-$45,000
$16,875
$45,000
Total cost allocated
$0
$0
$315,208
$670,000
a- If the direct method is used, calculate maintenance costs allocated to the cutting
department?
Maintenance costs allocated to the cutting department = $23,333
b- If the direct method is used, calculate the total cost (including allocations) for the
packaging department?

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Total cost (including allocations) for the packaging department = $354,792
c- Assume you are working for the organization and are requested to allocate support
department costs. Describe how you would choose the best method?
a. The first step in choosing the best method for allocation of support department costs is
analyzing the purpose of the allocation of the service department. Based on this purpose,
there are three possible methods to choose from. The three are the direct method, step
method, and reciprocal method. The third method (Reciprocal Method) would be the best
because it is the most accurate method for allocating support departments costs.
(Ashenafi, 2019)
b. Direct Method- This method allocates costs from each operating department to the
service departments based on each of the department's share of the allocation base
(Ashenafi, 2019). Services utilized from the other departments are ignored.
c. Step Method- Step method first allocates costs to operating departments and then after
the costs have been allocated it will allocate to the other service departments (Ashenafi,
2019). If a department has already had all its costs allocated, then it will not be allocated
back any more costs (Ashenafi, 2019).
d. Reciprocal Method- This method is the most accurate but complicated method.
Reciprocal method allocates service costs to the operating departments and other service
departments, much like the step method, but costs can be allocated back to a department
that has already had its costs allocated (Ashenafi, 2019). There is a recognized
relationship between service departments, and this allows for the allocation of costs to
and from each department for provided services (Ashenafi, 2019).

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Q 1 The accountant for Kadhim Inc. is preparing the budgets for operating department support service costs. Maintenance costs are allocated based on square feet, and cafeteria costs are allocated based on number of employees. The following data have been collected: Support Departments Maintenance Direct costs Cafeteria SAR50,000 SAR45,000 Number of employees Square feet Cutting Packaging SAR275,000 SAR300,000 15 10 150 250 1,500 2,000 3,500 4,000 Support Departments Maintenance Cafeteria Departmental Costs Operating Departments $50,000 Operating Department Cutting Packaging Total $275,000 $300,000 $575,000 $23,333 $26,667 $50,000 -$45,000 $16,875 $28,125 $45,000 $0 $315,208 $354,792 $670,000 $45,000 Allocation Maintenance (Ratio -$50,000 of 3500:4000) Cafeteria (Ratio of 150:250) Total cost allocated $0 a- If the direct method is used, calculate maintenance costs allocated to the cutting department? Maintenance costs allocated to the cutting department = $23,333 b- If the direct method is used, calculate the total cost (including allocations) for the packaging department? Total cost (including allocations) for the packaging department = $354,792 c- Assume you are working for the organization and are requested to allocate support department costs. Describe how you would choose the best method? a. The first step in choosing the best method for allocation of support department costs is analyzing the purpose of the allocation of the servic ...
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