What are total costs of each revenue-generating department

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Reference no: EM132746736

Question - Children s Books, Inc. has 2 revenue-producing departments: Board Books and Interactive eBooks. The company has 2 support departments: Administration and Accounting. Administration costs are allocated based on the square footage occupied, while Accounting costs are allocated based on the number of employees. Costs and allocation bases are presented below:

Department	Employees	Footage	Direct Cost
Administration	4	12,500	$1,120,000
Accounting	10	15,000	564,000
Board Books	80	65,000	4,520,000
Interactive Books	30	80,000	2,340,000

Required -

a) Using the direct method, allocate the support department costs to the revenue-producing departments. What are the total costs of each revenue-generating department after the allocation?

(b) If the benefits-provided ranking is (1) Administration and (2) Accounting, use the step method to allocate the support department costs to the revenue-generating department. What are the total costs of each revenue-generating department after the allocation?

(c) Use the algebraic (or reciprocal) method to allocate the support department costs to the revenue-generating departments. What are the total costs for each revenue-generating department after the allocation?

(d) Discuss the advantages and disadvantages of each method. Be sure to identify behavioral issues that might arise as a consequence of using the various methods. Which method would you recommend for Children's Books, Inc.? Justify your response.

Reference no: EM132746736

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