Question

Barfield Corporation prepares business plans and marketing analyses for startup companies in the Cleveland area. Barfield has been very successful in recent years in providing effective service to a growing number of clients. The company provides its service from a single office building in Cleveland and is organized into two main client-service groups: one for market research and the other for financial analysis. The two groups have budgeted annual costs of $440,000 and $770,000, respectively. In addition, Barfield has a support staff that is organized into two main functions: one for clerical, facilities, and logistical support (called the CFL group) and another for computer-related support. The CFL group has budgeted annual costs of $297,000, while the annual costs of the computer group are $636,000. Tom Brady, CFO of Barfield, plans to prepare a departmental cost allocation for his four groups, and he assembles the following information. Percentage of estimated dollars of work and time by CFL group: 10%—service to the computer group 20%—service to market research 70%—service to financial analysis Percentage of estimated dollars of work and time by the computer group: 20%—service to the CFL group 40%—service to market research 40%—service to financial analysis Required: Determine the total cost in the financial analysis and market research groups, after departmental allocation, using (a) the direct method, (b) the step method when the sourcing department that provides the greatest percentage of services to other service departments goes first, and (c) the reciprocal method. (Round percentage calculations to 4 decimal places (e.g., 33.3333%), intermediate calculations and final answers to the nearest dollar amount.)

Answer 1

Determination of total cost to financial analysis and market research groups:

(a)Direct method

particulars	financial	Marketing
cost	770000$	440000$
Computer support	636000$*40% 254400$	636000$*40% 254400$
CFL Group	297000$*70% 207900$	297000*20% 59400$
Total	1232300$	753800$

(B)The step Method

particulars	service departments		sourcing departments
	computer	CFL	Financial	Marketing
Cost before allocation	$636000	$297000	$770000	$440000
Allocation of costs
Department of computer	($636000)	$636000*20% $127200	$636000*40% $254400	$636000*40% $254400
Depaartment of CFL		($424200)	$424200*70% $296940	$424200*20% $84840
Total Cost	$0	$0	$1321340	$779240

(C) Reciprocal Method:

particulars	Sourcing departments		service departments
	Finance	MArketing	Computer	CFL
Cost before Allocation	$770000	$440000	$636000	$297000
Allocation:
Computer(40% 40% 20%)	261059$	261059$	(652647)	$130529
CFL(70% 20% 10%)	$299270	$85506	$65265	(427529)
Total	$1330329	$786565	$0	$0

Computer= $636000+10% CFL ------(1)

CFL=$297000+20% Computer ------(2)

substituting (2) in (1)

computer = $636000+10%($297000+20% computer)

computer =$636000+29700$+2% computer

computer =$665700/1.02

computer =$ 652647

CFL = $427529