Reference no: EM132829577

Question - Amy's Binders produces and sells both custom and ordinary binders. The company has four departments: Marketing, HR, Custom Binders, and Ordinary Binders.

The Marketing and HR departments provide support services for each other as well as for the operating departments. The two operating departments run completely independently of each other. Amy uses the number of employees to allocate HR costs, and the total dollars spent to allocate Marketing costs. The following data is available for the year just ended:

Support Departments Operating Departments

Marketing HR Custom Ordinary

Costs incurred before allocations 800,000 500,000 1,400,000 1,600,000

Total dollars spent - 125,000 650,000 725,000

Number of employees 18 - 315 678

REQUIRED -

a) Assume that Amy allocates the costs of its support departments to the operating departments using the direct method. Calculate the total cost, including allocations, of each of the two operating departments.

b) Disregard your answer to (a). Assume that Amy allocates the costs of its support departments to the operating departments using the step-down method based on the percentage of their services provided to other support departments. Calculate the total cost, including allocations, of each of the two operating departments.

c) Disregard your answers to (a) and (b). Assume that Amy allocates the costs of its support departments to the operating departments using the reciprocal method. Calculate the total cost, including allocations, of each of the two operating departments.