The following matrix, illustrates each support department’s cost and how it spends its time: Support Department...

The following matrix, illustrates each support department’s cost and how it spends its time:

	Support Department
User of Support Service	Personnel	Accounting & Administration	Marketing	Fleet Operations
Personnel		5%
Accounting & Administration	5%			8%
Marketing	10%	10%
Fleet Operations	5%	10%

Gardening Center	15%	25%	40%	7%
Landscaping	25%	30%	30%	40%
Lawn Care	40%	20%	30%	45%

TOTAL COST	$50,000	$80,000	$240,000	$200,000

Using the step-down method of support department cost allocation, determine the total support cost allocated to each operating department. Allocate costs in the following order: A&A, Personnel, Fleet Operations, Marketing.

Explain why the order of allocation given in part 1, above, may have been chosen.

Expert Solution

	A&A	Personnel	Fleet Operations	Marketing	Gardening Center	Landscaping	Lawn Care	Total
	$ 80,000	$ 50,000	$ 2,00,000	$ 2,40,000	$ -	$ -	$ -	$ 5,70,000
Allocation of A&A costs in the ratio of 5:10:10:25:30:20	$ -80,000	$ 4,000	$ 8,000	$ 8,000	$ 20,000	$ 24,000	$ 16,000	$ -
Total costs	$ -	$ 54,000	$ 2,08,000	$ 2,48,000	$ 20,000	$ 24,000	$ 16,000
Allocation of Personnel costs in the ratio of 5/10/15/25/40	$ -	$ -54,000	$ 2,842	$ 5,684	$ 8,526	$ 14,211	$ 22,737	$ -
Total costs	$ -	$ -	$ 2,10,842	$ 2,53,684	$ 28,526	$ 38,211	$ 38,737
Allocation of Fleet operations cost in the ratio of 7/40/45	$ -	$ -	$ -2,10,842	$ -	$ 16,042	$ 91,671	$ 1,03,129	$ -0
Total costs	$ -	$ -	$ -	$ 2,53,684	$ 44,568	$ 1,29,882	$ 1,41,866
Allocation of marketing costs in the ratio of 4/3/3				$ -2,53,684	$ 1,01,474	$ 76,105	$ 76,105	$ -
Final allocated costs	$ -	$ -	$ -	$ -	$ 1,46,042	$ 2,05,987	$ 2,17,971	$ 5,70,000
Explanation for choosing the order of allocation:
The department rendering service to the maximum number of other departments is to be chosen. Hence, the order would be:
Personnel and A&A-Rank 1 as they do service to 6 departments.
But, as A&A has higher cost at $80000 it will be given Rank 1 and Personnel Rank 2.
Then fleet operations (4 departments) and finally marketing (3 departments).

jeff jeffy answered 1 year ago

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