Question

Seattle Partners provides management consulting Services to government and corporate clients. Seattle has two support departments administrative services (AS) and information systems (S) and two operating departmenis gaverrment consulting (GOVT) and corporate consulting (CORP). For the first quarter of 2017, Seattle's cost records indicate the following: Click the icon to view the cost records.) Read the rccuircments. Requirement 1a. Allocate the two support departments' costs to the two operating departments using the direct method. (Do not round intermediary calculations and round your final answers to the nearest whole dallar. Use parentheses or a minus sign when decreasing departments by allocating costs. Enter a V" for any zero balances.) Support Departments Operating Departments Direct Method AS IS GOVT CORP A Requirements Total Budgeted overhead coats before interdepartment cost allocations 1. Allocate the two support departments' costs to the two operating departments Allocation of AS costs using the following methods: Allocation of IS costs a. Direct method b. Step-down method (Allocate AS first Tolal budgeled overhead of operating departments Stop-down method (Allocate IS first) 2. Compare and explain differences in the support department costs allocated to each operating department 3. What approaches might be used to decide the sequence in which to a locate Data Table Bupport departments when using the step-down method? Print Done SUPPORT OPERATING AS IS GOVT CORP Total $ 680,000 $ 3,000,000 $ 3.725,000 $ 12.540,000 $ 24,925,000 Budgeted overhead costs before any Interdepartment cost allocations Support work supplied by AS budgeted head count) Support work supplied by IS (budgeted computer time) 20% 489 32% 100% 10% 0 36% % 54% 100% Print Done

Answer 1

1)
a)	Direct Method			Support Department		Operating Department
				AS	IS	Govt.	Corp.
	Cost before allocations			$ 6,60,000.00	$ 30,00,000.00	$    87,25,000.00	$ 1,25,40,000.00	$ 2,49,25,000.00
	Allocation of AS			$ -6,60,000.00		$      3,96,000.00	$      2,64,000.00
	Allocation of IS			$                    -	$ -30,00,000.00	$    12,00,000.00	$    18,00,000.00	$                        -
	Total budgeted OH					$ 1,03,21,000.00	$ 1,46,04,000.00	$ 2,49,25,000.00
b)	Step Method			Support Department		Operating Department
				AS	IS	Govt.	Corp.
	Cost before allocations			$ 6,60,000.00	$ 30,00,000.00	$    87,25,000.00	$ 1,25,40,000.00	$ 2,49,25,000.00
	Allocation of AS			$ -6,60,000.00	$     1,32,000.00	$      3,16,800.00	$      2,11,200.00
	Allocation of IS			$                    -	$ -31,32,000.00	$    12,52,800.00	$    18,79,200.00	$                        -
	Total budgeted OH					$ 1,02,94,600.00	$ 1,46,30,400.00	$ 2,49,25,000.00
c)	Step Method			Support Department		Operating Department
				AS	IS	Govt.	Corp.
	Cost before allocations			$ 6,60,000.00	$ 30,00,000.00	$    87,25,000.00	$ 1,25,40,000.00	$ 2,49,25,000.00
	Allocation of IS			$ 3,00,000.00	$ -30,00,000.00	$    10,80,000.00	$    16,20,000.00
	Allocation of AS			$ -9,60,000.00	$                      -	$      5,76,000.00	$      3,84,000.00	$                        -
	Total budgeted OH					$ 1,03,81,000.00	$ 1,45,44,000.00	$ 2,49,25,000.00

2)	In Direct Method, support department costs are allocated directly to production department
	without being allocated to other support department.
	The step-down method partially recognizes services to other support departments.
	In Step down method, 20% support supplies by AS to IS and 10% support supplies by
	IS to AS is considered.

3)	Approaches to decide the sequence are as follows:
a)	Allocate support departments on a ranking of the percentage of their total services provided
	to other support departments.
b)	Allocate support departments on a ranking of the total dollar amount in the support departments.
c)	Allocate support departments on a ranking of the dollar amounts of service provided to other
	support departments.