Cost Accounting and Decision Making
1Using the following methods, apply overhead from the service departments to the
production departments and calculate the total budgeted overhead cost of each
production department after the allocation.
a. Direct method
b. Step-down method
i. If Info. Systems goes first
ii. If Facilities goes first
2. Rather than allocate costs, how might Delaware better assign the service departments’
costs?
1
Cost Accounting and Decision Making (ACC2CAD)
Delaware, a computer software consulting company, has three major functional areas:
computer programming, information systems consulting, and software training. Julie Waltz, a
pricing analyst in the accounting department, has been asked to develop total costs for the
functional areas. These costs will be used as a guide in pricing a new contract. In computing
these costs, Julie is considering two different methods of the departmental allocation approach
to allocate overhead costs: the direct method and the step-down method. She assembled the
following data from the two service departments, information systems and facilities.
This mini case study is designed to encompass the following graduate
skills/capabilities, written communication, critical thinking, team work
and presentation of information/information literacy.
2
Service Departments Production Departments
Info.
Systems Facilities
Computer
programming
Info. Systems
consulting
software
training
Budgeted overhead $80,000 $45,000 $150,000 $190,000 $135,000
Info. Systems (hours)* 200 1,200 600 1,000
Facilities (sq feet)** 200 400 600 800
* Allocated on the basis of hours of computer usage.
** Allocated on the basis of floor space.
REQUIRED:
Assume you were Julie Waltz,
1. Using the following methods, apply overhead from the service departments to the
production departments and calculate the total budgeted overhead cost of each
production department after the allocation.
a. Direct method
b. Step-down method
i. If Info. Systems goes first
ii. If Facilities goes first
2. Rather than allocate costs, how might Delaware better assign the service departments’
costs? Answer to this question limits to 50 words.
Please note:
? This case study MUST be prepared in an Excel format with proper formulas embedded
for the required calculations;
? Use 4 decimal places for your allocation percentage (e.g., 22.2222%) but round the
allocation cost to the nearest dollars (e.g., $12,345) in your calculations.
? Sheet 1 of your Excel file is the cover sheet. Please ensure it includes your team
members’ names and student numbers (refer to p. 3);
? Sheet 2 of your Excel file is for Requirement 1 and 2;
? Use Exhibit 7.13 and Exhibit 7.15 from your textbook as a reference to set up the cost
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