Breakfast Bars Has Two Support Departments, Information Systems and Personnel

Essay

Breakfast Bars has two support departments, Information Systems and Personnel. The Information Systems Department costs of $120,000 are allocated on the basis of hours used. The Personnel Department costs of $30,000 are allocated based on the number of employees. Costs of the two operating departments are $60,000 for Fruit Bars and $90,000 for Nut Bars. Data on information systems hours used and number of employees are as follows:
Information
Allocation Bases: Systems Personnel Fruit Nut
Information systems hours used 600 600 720 480
Number of employees 10 20 40 120
a)What is the cost of the Information Systems Department allocated to Fruit using the direct method?
b)Using the step-down method, what is the cost of the Personnel Department allocated to Fruit if the support department having the highest cost is allocated first?
c)Write the equations needed to allocate the costs of each support department using the reciprocal method.
d)Now solve for the total cost to be allocated under the reciprocal method for the Information Systems Department.
e)Breakfast Bars uses the allocation system to charge for services provided by the two support departments. Assume that Breakfast Bars uses the reciprocal method. What is the hourly charge for Information Systems' services?
f)Identify and discuss one problem with using a single rate allocation method to develop charges for the use of services.