Protein Bars has two support departments, Information Systems and Personnel. The Information Systems Department costs of...

Protein Bars has two support departments, Information Systems and Personnel. The Information Systems Department costs of $120,000 are allocated on the basis of hours used. The Personnel Department costs of $30,000 are allocated based on the number of employees. Costs of the two operating departments are $60,000 for Fruit Bars and $90,000 for Nut Bars. Data on information systems hours used and number of employees are as follows:

information hours used = info 600, personnel 600, fruit 720, nut 480. employees used =. info 10, personnel 20, fruit 40, nut 120

a) What is the cost of the Information Systems Department allocated to Fruit using the direct method? b) Using the step-down method, what is the cost of the Personnel Department allocated to Fruit if the support department having the highest cost is allocated first?
c) Write the equations needed to allocate the costs of each support department using the reciprocal method.
d) Now solve for the total cost to be allocated under the reciprocal method for the Information Systems Department.
e) Protein Bars uses the allocation system to charge for services provided by the two support departments. Assume that Protein Bars uses the reciprocal method. What is the hourly charge for Information Systems’ services?

Expert Solution

Particulars	Basis of Apportionment	Fruit bars	Nut Bars	Information System Dept.	Personnel Dept.
Solution to A
Departmental cost	As provided	60000	90000	120000	30000
Allocation of information System dept Cost	Direct Distribution Method 720 :480	72000	48000	-120000
Cost of Fruit Bars Dept		132000
Solution to B
Departmental cost	As provided	60000	90000	120000	30000
Allocation of information System dept Cost	Step Down Method 720:480:600	48000	32000	-120000	40000
Allocation of Personnel dept Cost	Step Down Method 40:120	17500	52500		-70000
Total Cost for Production Dept.		125500	174500

Figures in $

Solution to C:-

Let the Total cost of information Dept is X for Personnel Dept is Y.

The ratio of Expenses of information Dept by Personnel Dept = 600/1800 or 1/3

The ratio of Expenses of Personnel dept by Information Dept = 10/170 or 1/17

Accordingly the equations will be:-

X = 120000 + 1/3 Y - Equation-1

Y= 30000 + 1/17 X - Equation-2

jeff jeffy answered 1 year ago

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