105 10. Exercises and problems (Part 2) – new problems created by Rob Zatulsky, Fall 2022
Step Down Method
Question 1
Colby Company has two support departments, A and B, that support the operating departments, Y and Z.
Using the step down approach, allocate each of the support departments direct costs. Colby Company allocates Support A first.
| Support Departments | Operating Departments | |||
| A | B | Y | Z | |
| Direct costs | $50,000 | $45,000 | $275,000 | $300,000 |
| Support A | – | 15% | 45% | 40% |
| Support B | 10% | – | 55% | 35% |
Question 2
RMZ Inc. presses vinyl records. The accountant is preparing the budgets for the operating department support service costs. HR costs are allocated based on number of employees, and maintenance costs are based on square meters. Allocate the support costs to each department using the step down approach, charging out maintenance first.
| Support Department |
Operating Department |
||||
| HR | Maintenance | Pressing | Packaging | Shipping | |
| Direct costs | $12,000 | $17,000 | $275,000 | $300,000 | $400,000 |
| Number of employees | 4 | 12 | 50 | 75 | 45 |
| Square meters | 1,500 | 2,000 | 3,500 | 4,000 | 3,000 |
Question 3
MJJ Inc. mass produces artesian bread products. The accountant is preparing the budgets for the operating department support service costs. HR costs are allocated based on number of employees, maintenance costs are based on square meters, and the accounting department is based on monthly hours. Allocate the support costs to each department starting with accounting then maintenance then HR.
| Support departments | Operating departments | |||||
| Maintenance | HR | Accounting | Mixing | Baking | Slicing | |
| Direct costs | $25,000 | $22,000 | $75,000 | $125,000 | $300,000 | $100,000 |
| Square Meters | 15 | 10 | – | 150 | 250 | 75 |
| Number of employees | 5 | 3 | 2 | 45 | 55 | 30 |
| Number of hours | 20 | 15 | 10 | 40 | 50 | 25 |
Reciprocal Method
Question 1
Graffin & Gurewitz has two support departments, D and F, that support the operating departments, B and R. Allocate the support department costs using the reciprocal method.
| Support Departments | Operating Departments | |||
| D | F | B | R | |
| Direct costs | $12,000 | $19,000 | $45,000 | $89,000 |
| Support D | – | 12% | 50% | 38% |
| Support F | 5% | – | 55% | 40% |
Question 2
RMZ Inc. presses vinyl records. The accountant is preparing the budgets for the operating department support service costs. Allocate the support costs to each department using the reciprocal method.
| Support Departments | Operating Departments | ||||
| Design | Accounting | Pressing | Packaging | Shipping | |
| Direct costs | $50,000 | $45,000 | $200,000 | $789,000 | $500,000 |
| Design | – | 10% | 20% | 40% | 30% |
| Accounting | 12% | – | 28% | 45% | 15% |
Question 3
Zevon Company mass produces werewolf masks for Halloween. The accountant is preparing the budgets for their operating department support service costs. Allocate the support departments using the reciprocal method.
| Support Departments | Operating Departments | ||||
| A | B | X | Y | Z | |
| Direct costs | $7,600 | $14,400 | $78,900 | $61,140 | $81,830 |
| Support A | – | 75 | 150 | 250 | 300 |
| Support B | 1,500 | – | 3,500 | 4,000 | 7,000 |
