Reference no: EM131809232

Support department cost allocation

Part A

1.Explain the differences between the operating and support departments.

2. Explain the direct, step-town and reciprocal methods of support department cost allocation.Compare the three methods in terms of recognition of interactions among support departments,complexity, and accuracy.

Part B

Statewide Bank has two support departments: the Human Resources department and the Computing department. The bank also has two operating departments that service customersdirectly: the Deposits department and the Loans department. The usage of the two support departments' output in the year just ended was as follows:

	Provider of support
User of support	Human Resources	Computing
Human ResourcesComputing Deposits Loans	- 20% 50% 30%	20% - 60% 20%

The budgeted costs in the two support departments for the year just ended were:

Human Resources                       $360 000

Computing                                  600 000

Required:

1. Use the direct method to allocate the budgeted costs of the Human Resources and Computing departments to the Deposits and Loans departments

2. Use the step-down method to allocate the budgeted costs of the Human Resources and Computing departments to the Deposits and Loans departments. Rank the departmentsbased on their budgeted costs.

3. Use the reciprocal method to allocate the budgeted costs of the Human Resources andComputing departments to the Deposits and Loans departments.