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last year, he thought, "Here's my chance!" In addition to the step method that this company ias currently using. Ronin remembered learning two other methods for allocating these costs-the direct method and the reciprocal method. The two operating segments of this company reflect their locations-Suburban and Downtown. The two support departments are Administrative Services and Maintenance Services. Their costs have been allocated by administrative hours and maintenance hours, respectively. Here are the relevant costs and usages for all four of these departments. Support Departments Administrative Services Maintenance Services Operating Departments Suburban Downtown Original Cost S55,000 $40,000 S185,000 $215,000 Administrative hours used 100 250 150 Maintenance hours used 200 350 650 Required (Round proportions to four decimal places if necessary, round dollar amounts to the nearest cent.) a. Rank the two support departments based on their original cost (as was done last year) and allocate the support department costs using the step method. b. Allocate the support department costs instead using the direct method. c. Allocate the support department costs one more time, this time using the reciprocal method in Excel (you may check the reasonableness of each total support department cost estimate by solving by hand). d. Putting yourself in Ronin's shoes, write an email to his supervisor explaining what he did and what the different allocation results show. Make a recommendation to Sondra as to whether the company should continue to use the step method or consider switching to one of the other two methods.

last year, he thought, "Here's my chance!" In addition to the step method that this company ias currently using. Ronin remembered learning two other methods for allocating these costs-the direct method and the reciprocal method. The two operating segments of this company reflect their locations-Suburban and Downtown. The two support departments are Administrative Services and Maintenance Services. Their costs have been allocated by administrative hours and maintenance hours, respectively. Here are the relevant costs and usages for all four of these departments. Support Departments Administrative Services Maintenance Services Operating Departments Suburban Downtown Original Cost S55,000 $40,000 S185,000 $215,000 Administrative hours used 100 250 150 Maintenance hours used 200 350 650 Required (Round proportions to four decimal places if necessary, round dollar amounts to the nearest cent.) a. Rank the two support departments based on their original cost (as was done last year) and allocate the support department costs using the step method. b. Allocate the support department costs instead using the direct method. c. Allocate the support department costs one more time, this time using the reciprocal method in Excel (you may check the reasonableness of each total support department cost estimate by solving by hand). d. Putting yourself in Ronin's shoes, write an email to his supervisor explaining what he did and what the different allocation results show. Make a recommendation to Sondra as to whether the company should continue to use the step method or consider switching to one of the other two methods.

Cornerstones of Cost Management (Cornerstones Series)
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter3: Cost Behavior
Section: Chapter Questions
Problem 39P: Randy Harris, controller, has been given the charge to implement an advanced cost management system....
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last year, he thought, "Here's my chance!" In addition to the step method that this company ias currently using, Ronin remembered learning two other methods for allocating these costs-the direct method and the reciprocal method. The two operating segments of this company reflect their locations-Suburban and Downtown. The two support departments are Administrative Services and Maintenance Services. Their costs have been allocated by administrative hours and maintenance hours, respectively. Here are the relevant costs and usages for all four of these departments. Support Departments Administrative Services Maintenance Services Suburban Operating Departments Downtown Original Cost $55,000 $40,000 S185,000 S215,000 Administrative hours used 100 250 150 Maintenance hours used 200 350 650 Required (Round proportions to four decimal places if necessary, round dollar amounts to the nearest cent.) a. Rank the two support departments based on their original cost (as was done last year) and allocate the support department costs using the step method. b. Allocate the support department costs instead using the direct method. c. Allocate the support department costs one more time, this time using the reciprocal method in Excel (you may check the reasonableness of each total support department cost estimate by solving by hand). d. Putting yourself in Ronin's shoes, write an email to his supervisor explaining what he did and what the different allocation results show. Make a recommendation to Sondra as to whether the company should continue to use the step method or consider switching to one of the other two methods.
Transcribed Image Text:last year, he thought, "Here's my chance!" In addition to the step method that this company ias currently using, Ronin remembered learning two other methods for allocating these costs-the direct method and the reciprocal method. The two operating segments of this company reflect their locations-Suburban and Downtown. The two support departments are Administrative Services and Maintenance Services. Their costs have been allocated by administrative hours and maintenance hours, respectively. Here are the relevant costs and usages for all four of these departments. Support Departments Administrative Services Maintenance Services Suburban Operating Departments Downtown Original Cost $55,000 $40,000 S185,000 S215,000 Administrative hours used 100 250 150 Maintenance hours used 200 350 650 Required (Round proportions to four decimal places if necessary, round dollar amounts to the nearest cent.) a. Rank the two support departments based on their original cost (as was done last year) and allocate the support department costs using the step method. b. Allocate the support department costs instead using the direct method. c. Allocate the support department costs one more time, this time using the reciprocal method in Excel (you may check the reasonableness of each total support department cost estimate by solving by hand). d. Putting yourself in Ronin's shoes, write an email to his supervisor explaining what he did and what the different allocation results show. Make a recommendation to Sondra as to whether the company should continue to use the step method or consider switching to one of the other two methods.
P14.1 (LO 1, 2), AP Excel Business Writing After starting his first full-time position for a private com- pany, Ronin was anxious to go above and beyond the expectations of his supervisor. So when Sondra asked him to complete the support department cost allocations for all departments using the same method as they used
Transcribed Image Text:P14.1 (LO 1, 2), AP Excel Business Writing After starting his first full-time position for a private com- pany, Ronin was anxious to go above and beyond the expectations of his supervisor. So when Sondra asked him to complete the support department cost allocations for all departments using the same method as they used
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