Question

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Data Performance, a computer software consulting company, has three major functional areas: computer programming, information systems consulting, and software training. Carol Bingham, a pricing analyst, 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:

	Service Departments			Production Departments
	Information Systems	Facilities	Computer Programming	Information Systems Consulting	Software Training	Total
Budgeted overhead (base)	$70,000	$39,000	$166,000	$200,000	$139,000	$614,000
Information Systems (computer hours)		1,200	600	1,200	3,000	6,000
Facilities (square feet)	240		480	480	1,200	2,400

Required:

1. Using computer usage time as the allocation base for the information systems department and square feet of floor space as the application base for the facilities department, apply overhead from these service departments to the production departments, using these three methods:

a. Direct method.

b. Step method (both for the information systems department going first and for the facilities department going first).

c. Reciprocal method.

(Round percentage calculations to 4 decimal places (e.g., 33.3333%). For all requirements, Do not round your intermediate calculations. Round your final answers to nearest whole dollar amount.)

	Programming Consulting Training Total a. Direct Method $0 b. Step Method (Information Systems Goes First) $0 Step Method (Facilities Goes First) $0 c. Reciprocal method $0

***PLEASE SHOW ALL YOUR WORK ON HOW TO ANSWER THIS QUESTION. I NEED TO KNOW HOW TO GET ALL NUMBERS. PLEASE PROVIDE A WORKING NOTE. THANK YOU!!***

Answer 1

Part 1 direct method

Direct Method		Production Departments
	Budgeted overhead	Computer Programming	Information System Consulting	Software Training
Direct Method		166000	200000	139000
Information system(6:12:30)	70000	8,750.00	17,500.00	43,750.00
Facilities (4:4:10)	39000	8,666.67	8,666.67	21,666.67
Total Overhead		183,416.67	226,166.67	204,416.67

Part2 step method

Step Method
	Service Department		Production Departments
	Information System	Facilities	Computer Programming	Information System Consulting	Software Training
Direct cost Before Allocation	70000	39000	166000	200000	139000
Information System Allocation(6:12:30)	70000	14000	7000	14000	35000
		53000	173000	214000	174000
Facilities Allocation (4:4:10)		-53000	11778	11778	29444
Total Overhead		0	184778	225778	203444

Part3 - reciprocal method

Total Information systems cost = 70000 $ + 10% of facility cost

Total facility cost = $ 39000 + 20% of total Information systems cost

assuming, total facility cost as "X"

Therefore, Total information systems =$70000 + 10% X = $70000 + 0.1X

total facility cost = $39000 + 20% of total Information systems cost

So, X = $39000 + 20% of ($70000 + 0.1X) = $39000 + $14000 + 0.02X

0.98X = $53000

So, X = $53000/0.98 = $54082

Total facility cost = $54082

Cost per hour = 9.013

Total information system cost = 70000 +10% of total facilities cost

= 70000+ 10% of 54082

= 75408.

Cost per hour = 31.42

	Budgeted overhead	Computer Programming	Information System Consulting	Software Training
Direct		166000	200000	139000
Information system(6:12:30)	75408	9426	30163.2	47130
Facilities (4:4:10)	54082	12,018	12,018	30,046
Total Overhead		187,444.22	242,181.42	216,175.56