Question

Boston Partners provides management consulting services to government and corporate clients.

Boston has two support Departments —administrative

services​ (AS) and information systems (IS)—and two operating departments—government

consulting​ (GOVT) and corporate consulting​ (CORP). For the first quarter of 2013​,

Boston's cost records indicate the​ following:

SUPPORT		OPERATING
	AS	IS	GOVT	CORP	Total
Budgeted overhead costs before any interdepartment cost allocations	$630,000	$3,000,000	$8,725,000	$12,470,000	$24,825,000
Support work supplied by AS (budgeted head count)	0	20%	48%	32%	100%
Support work supplied by IS (budgeted computer time)	10%	0	36%	54%	100%

1.Allocate the two support​ departments' costs to the two operating departments using the following​ methods:

a.Direct method

b.​Step-down method​ (Allocate AS​ first)

c.Step-down method​ (Allocate IS​ first)

2.Compare and explain differences in the​ support-department costs allocated to each operating department.

3.What approaches might be used to decide the sequence in which to allocate support departments when using the​ step-down method?

Answer 1