Exam 3 - Practice Problems.pdf

# Personnel department 646465 184242 a 5 points what is

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Personnel Department \$646,465 ? \$ 184,242 a) (5 points) What is the total reciprocal cost of operating the legal department? Total reciprocal cost of the legal department \$ (5 points) What is the total amount of support department costs that should be allocated to Tablets? Total support department costs allocated to Tablets \$

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Exam 3 – Practice Problems Page 24 SOLUTION: 1. Using the direct method , a) (2 points) What is the total cost of operating both the legal department and the personnel department? Total cost of operating both support departments \$ 800,000 Cost of legal dept = 50,000 + 150,000 = 200,000 Cost of personnel dept = 420,000 + 180,000 = b) (2 points) How many hours of direct support, in total, did the legal department provide to Laptops and Tablets? Total hours of direct support provided by the legal department to Laptops and Tablets 1,600 hrs Total support = Total Cost Allocated = 200,000 = 1,600 hrs Allocation Rate 125
Exam 3 – Practice Problems Page 25 2. Using the step down method , a) (3 points) Which of the two support departments is ranked higher? (i.e. Whose costs are allocated first?) Please legibly write your answer in the space provided below. Provide a brief explanation to support your answer. The primary support department is Legal The legal department is the primary support department because 1. the allocation rate for the legal department using the step down method is less than that using the direct method; or 2. the legal department cost allocated to the product lines using the step down method (160,000 = 40,000 + 120,000) is less than that using the direct method, implying that some of the legal department’s costs have been allocated to the personnel department. or 3. the personnel department cost allocated to the product lines using the step down method is more that using the direct method. 4. b) (4 points) How many hours of support, in total, did the legal department provide? Total hours of support provided by the legal department 2,000 hrs Legal costs allocated to personnel dept. = 200,000 – (40,000 + 120,000) = 40,000 Hours supplied to personnel dept. = 40,000 = 400 100 Hours supplied to Laptops and Computers = 1,600 Total 2,000

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Exam 3 – Practice Problems Page 26 3. Using the reciprocal method , a) (5 points) What is the total reciprocal cost of operating the legal department? Total reciprocal cost of the legal department \$ 232,325 Let the total reciprocal cost of the legal dept. be L Direct cost of operating personnel dept. = 600,000 (from 1a) So, Total reciprocal cost of personnel = 646,465 = 600,000 + [(400/2,000) x L] L = 646,500 – 600,000 (400/2,000) = 232,325 b) (5 points) What is the total amount of support department costs that should be allocated to Tablets? Total support department costs allocated to Tablets \$ 323,637 Allocated costs from personnel dept. = 184,242 Support from legal dept for Tablets = 150,000 = 1,200 hrs (Given facts from 1) 125 Allocated costs from legal dept. = 232,325 x = 139,395 323,637
Exam 3 – Practice Problems Page 27 QUESTION QUICK Corporation repairs printers and photocopiers for three companies located in the Philadelphia area. QUICK’s costs consist of the cost of technicians and equipment that are directly traceable to each customer and a pool of office overhead costs which amounted to \$136,750 in 2011. Until recently, QUICK estimated the profitability of each of its customers using a conventional approach.

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