Hudson Books, an online book retailer, has two operating departments – corporate sales and consumer sales – and two support departments – human resources and information systems. Each sales department conducts merchandising and marketing operations independently. Hudson Books uses number of employees to allocate human resources costs and processing time to allocate information systems costs. The following data are available for September 2019.
| Support Departments | Operating Departments | |||
| Human Resources | Information Systems | Corporate Sales | Consumer Sales | |
| Budgeted costs incurred before any inter department cost allocations | $72,700 | $234,000 | $998,270 | $489,860 |
| Support work supplied by human resources department | ||||
| Budgeted number of employees | – | 21 | 42 | 28 |
| Support work supplied by information systems department | ||||
| Budgeted processing time (in minutes) | 320 | – | 1,920 | 1,600 |
Required:
- Allocate the support departments’ costs to the operating departments using the direct method.
- Rank the support departments based on the percentage of their services provided to other support departments.
- Use the above ranking to allocate the support departments’ costs to the operating departments based on the step-down method.
- How could you have ranked the support departments differently?
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