Question

Total Solution Ltd. is rendering its service on Network Solution to two types of customers: Company and Household. It categorised its operating department into: Company-Service and Household Service. Total Solution Ltd. also has two support departments: Administration (Admin) and Technician (Tech). Each of the operating departments conducts its operations independently. Total Solution Ltd. uses the number of technician’s hours used to allocate Tech costs and the number of admin staff used to allocate Admin costs. The following data are available for May 2020. Support Departments Operating Departments Admin Tech Company Household Budgeted costs $1,355,000 $3,200,000 $5,000,000 $4,000,000 Budgeted processing time (in min) 1,000 --- 1,600 2,400 Number of employees --- 15 9 36 Required (show your workings): Allocate the cost from support department to operating department and determine the total budgeted cost of each operating department after the cost has been allocated from the support department using the following method:

(a) Direct method

(b) Step-down method if the support department with highest dollar amount is allocated first. (c) Reciprocal method (using linear equation)

Answer 1

1	Direct method
		Administration	Technician	Company-Service	Household Service
	Budgeted costs	1,355,000	3,200,000	5,000,000	4,000,000
	(1,355,000 x 9/45), (1,355,000 x 36/45)	(1,355,000)		271,000	1,084,000
	(3,200,000 x 1,600/4,000), (3,200,000 x 2,400/4,000)		(3,200,000)	1,280,000	1,920,000
		-	-	6,551,000	7,004,000
2	Step-down method
		Administration	Technician	Company-Service	Household Service
	Budgeted costs	1,355,000	3,200,000	5,000,000	4,000,000
	(3,200,000 x 1,000/5,000), (3,200,000 x 1,600/5,000), (3,200,000 x 2,400/5,000)	640,000	(3,200,000)	1,024,000	1,536,000
	(1,995,000 x 9/45), (1,995,000 x 36/45)	(1,995,000)		399,000	1,596,000
		-	-	6,423,000	7,132,000