Question

C. XYZ’s Book and Music Store has two service departments, Warehouse and Data Center. Warehouse Department costs of $350,000 are allocated on the basis of budgeted warehouse-hours. Data Center Department costs of $150,000 are allocated based on the number of computer log-on hours. The costs of operating departments Music and Books are $250,000 and $300,000, respectively. Data on budgeted warehouse-hours and number of computer log-on hours are as follows:

	Support Departments		Production Departments
	Warehouse Department	Data Center Department	Music	Books
Budgeted costs	$350,000	$150,000	$250,000	$300,000
Budgeted warehouse-hours	NA	500	1,000	1,500
Number of computer hours	200	NA	800	1,000

1) Using the step-down method, what total amount of support department cost will be allocated to the Music Production Department? Allocate the Data Center Department first.

2) Using the direct method, what amount of Warehouse department costs will be allocated to the Books Department?

3) Using the reciprocal method, show the simultaneous equations used to determine the costs of providing the support department services. You do not need to solve the equations.

W =

D =

Answer 1