Question

Manhattan Partners provides management consulting services to government and corporate clients. Concord has two support departments---administrative services​ (AS) and information system ​(IS)---and two operating departments---government consulting​ (GOVT) and corporate consulting​ (CORP). For the first quarter of 2017, Manhattan's cost records indicate the​ following:

	SUPPORT			OPERATING
	AS	IS		GOVT	CORP	Total
Budgeted overhead costs before any
interdepartment cost allocations	$390,000	$3,600,000		$8,750,000	$12,540,000	$25,280,000
Support work supplied by AS
(budgeted head count)	---	20%		48%	32%	100%
Support work supplied by IS
(budgeted computer time)	10%	---		36%	54%	100%

The two support​ departments' costs have been allocated to the two operating departments using the direct method and the​ step-down method​ (AS department​ first) and the​ step-down method​ (IS department​ first). The results of the allocations are as​ follows:

direct method

	Support Departments		Operating Departments
Direct Method	AS	IS	GOVT	CORP	Total
Budgeted overhead costs
before interdepartment cost allocations	$390,000	$3,600,000	$8,750,000	$12,540,000	$25,280,000
Allocation of AS costs	(390,000)		234,000	156,000
Allocation of IS costs		(3,600,000)	1,440,000	2,160,000
Total budgeted overhead of operating departments	$0	$0	$10,424,000	$14,856,000	$25,280,000

step down method (AS) first

	Support Departments		Operating Departments
Step-down Method	AS	IS	GOVT	CORP	Total
Budgeted overhead costs
before interdepartment cost allocations	$390,000	$3,600,000	$8,750,000	$12,540,000	$25,280,000
Allocation of AS costs	(390,000)	78,000	187,200	124,800
	$0	3,678,000
Allocation of IS costs		(3,678,000)	1,471,200	2,206,800
Total budgeted overhead of operating departments		$0	$10,408,400	$14,871,600	$25,280,000

step down method (IS) first

	Support Departments		Operating Departments
Step-down Method	AS	IS	GOVT	CORP	Total
Budgeted overhead costs
before interdepartment cost allocations	$390,000	$3,600,000	$8,750,000	$12,540,000	$25,280,000
Allocation of IS costs	360,000	(3,600,000)	1,296,000	1,944,000
	$750,000	$0
Allocation of AS costs	(750,000)		450,000	300,000
Total budgeted overhead of operating departments	$0		$10,496,000	$14,784,000	$25,280,000

summary of the three methods

	GOVT	CORP
Direct method	$1,674,000	$2,316,000
Step-down (AS first)	1,658,400	2,331,600
Step-down (IS first)	1,746,000	2,244,000

Requirement 1a. Allocate the two support​ departments' costs to the two operating departments using the reciprocal method.

​First, determine the linear equations for each support department.

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Now allocate the support​ departments' costs​ (AS and IS department costs that you determined in the prior​ step) to the two operating departments using the reciprocal method. ​(Round decimal calculations to three decimal​ places, .XXX, and your final answers to the nearest whole dollar. Use parentheses or a minus sign when decreasing departments by allocating costs. Enter a​ "0" for any zero​ balances.)

Requirement 1b. Allocate the two support​ departments' costs to the two operating departments using the reciprocal method. Use repeated iterations. ​(Round your final answers to the nearest whole dollar. Use parentheses or a minus sign when decreasing departments by allocating costs. Enter a​ "0" for any zero​ balances.)

Answer 1

SUPPOSE AS COST =X

IS COST = Y

X = 390000+ 0.10Y   EQUATION 1

Y = 3600000+0.20X    EQUATION 2

Y = 3600000+0.20(390000+0.10Y)

Y = 3600000+78000+0.02Y

0.98Y = 3678000

Y =3753061

X = 390000+0.10(3753061)

= 765306

RECIPROCAL METHOD

	AS	IS	GOVT	CORP	TOTAL
INTERDEPARTMENTAL COST ALLOCATION	390000	3600000	8750000	12540000	25280000
AS COST ALLOCATED	-765306	153061 [765306*20%]	367347 [765306*48%]	244898 [765306*32%]
IS COST ALLOCATED	375306 [3753061*10%]	-3753061	1351102 [3753061*36%]	2026653 [3753061*54%]
TOTAL	0	0	10468449	14811551	25280000