Handy Home Improvement Warehouse Is a Nationwide Chain of Hardware

Essay

Handy Home Improvement Warehouse is a nationwide chain of hardware stores. It is organized into several operating departments, including (but not limited to): Appliances, Cabinets, Doors & Windows, Flooring, and Hardware. Handy requires several support departments, including Human Resources, Accounting and Finance, and Information Systems.
Suppose the accountant for Handy is considering two support cost allocation methods, direct and step-down. In a recent accounting period, assume Handy's accounting information system reported the following data:

a)Explain the similarities and differences between support and operating departments. Why do many organizations allocate support department costs to operating departments?
b)List and discuss the steps Handy would likely use to allocate support department costs to operating departments.
c)Handy has used its departments as cost pools for the purpose of support cost allocation. List one advantage and one disadvantage of using departments as cost pools.
d)Describe in your own words the direct method of allocation. List one advantage and one disadvantage of this method.
e)Describe in your own words the step-down method of cost allocation. List one advantage and one disadvantage of this method.
f)Under the step-down method, discuss whether it is reasonable to use the total direct costs for each support department to identify which department provided the most services to other support departments.
g)Is Handy using a single- or a dual-rate allocation process? Explain.
h)List and discuss three ways Handy could improve the quality of its allocated support cost information.