Gotham University offers only high-tech graduate-level programs. Gotham has two principal operating departments, Engineering and Computer...
Gotham University offers only high-tech graduate-level programs. Gotham has two principal operating departments, Engineering and Computer Sciences, and two support departments, Facility and Technology Maintenance and Enrollment Services. The base used to allocate facility and technology maintenance is budgeted total maintenance hours. The base used to allocate enrollment services is the number of credit hours for a department. The Facility and Technology Maintenance budget is $350,000, while the Enrollment Services budget is $950,000. The following chart summarizes budgeted amounts and allocation-base amounts used by each department: (retrieved from Horngren TestGen, Pearson Accounting Lab chapter 15).
|
Budget |
Engineering |
Computer Sciences |
F&T Maintenance |
Enrollment Service |
|
|
F&T Maintenance (in hours) |
$350,000 |
1,000 |
2,000 |
Zero |
5,000 |
|
Enrollment Service (in credit hrs) |
$950,000 |
24,000 |
36,000 |
2,000 |
Zero |
Prepare a schedule which allocates service department costs using the step-down method with the sequence of allocation based on the highest-percentage support concept. Compute the total amount of support costs allocated to each of the two principal operating departments, Engineering and Computer Sciences.
Now consider that John Peters is drafting the provisions of a cost-plus contract and is concerned with ironing out any possible misunderstandings during the life of the contract. What advice can you provide to reduce contract disputes over reimbursement amounts based on costs?
Homework Answers
Solution:
We have to allocate the budgeted amounts of support departments depending upon the service provided:
Proportion of total maintenance hours of F & T maintenance provided to enrollment services = 5000/ ( 1000+2000+5000) = 5/8
Proportion of total credit hours of enrollment services provided to F & T maintenance = 2000/(24,000+36,000+2000)= 2/62
Since F & T maintenance provides the greatest amount of service to support departments, so it is allocated first.
| F & T Maintenance | Enrollment Service | Engineering | Computer Science |
|
$ 350,0000 ($ 350,000) |
$ 950,000 $ 218,750 |
$ 43,750 |
$ 87,500 |
| $ 0 | ($1,168,750) | $467,500 | $ 701,250 |
| Totals | $ 0 | $ 511,250 | $ 788,750 |
Workings:
F & T maintenance to enrollment service = 350,000 x 5/8 = $218,750
F & T maintenance to Engineering = 350,000 x 1/8 = $ 43,750
F & T maintenance to Computer Science = 350,000 x 2/8 =$ 87,500
Enrollment service costs of = $ 950,000 + 218,750 = $ 1,168,750
These costs are allocated to Engineering and computer science departments.
Engineering = 1,168,750 x 24/60 = $ 467,500
Computer science = 1,168,750 x 36/60 = $ 701,250
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Gotham University offers only high-tech graduate-level programs.
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University Printers has two service departments (Maintenance and Personnel) and two operating departments (Printing and Developing). Management has decided to allocate maintenance costs on the basis of machine-hours in each department and personnel costs on the basis of labor-hours worked by the employees in each. The following data appear in the company records for the current period: Maintenance Personnel 1,000 Machine-hours Labor-hours Department direct costs Printing 1,000 500 $15,000 500 $5,000 Developing 3,000 2,000 $10,000 $12,000 Required: Use the direct...
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