Cost Management 6th Edition by Edward Blocher,David Stout ,Paul Juras,Gary Cokins

Exercise 44

Departmental Cost Allocation Computer Intelligence, a computer software consulting company, has three major functional areas: computer programming, information systems consulting, and software training. Carol Bingham, a pricing analyst in the accounting department, has been asked to develop total costs for the functional areas. These costs will be used as a guide in pricing a new contract. In computing these costs, Carol is considering three different methods of the departmental allocation approach to allocate overhead costs: the direct method, the step method, and the reciprocal method. She assembled the following data from the two service departments, information systems and facilities:

Required Use 4 decimal places (e.g., 33.3333%) in your calculations.
1. Using as the application base computer usage time for the information systems department and square feet of floor space for the facilities department, apply overhead from these service departments to the production departments, using these three methods.
a. Direct method.
b. Step method.
c. Reciprocal method.
2. Rather than allocate costs, how might Computer Intelligence better assign the information systems department's costs