I need help with this accounting problem. Hialeah Guayabera Shirts distributes i
ID: 2464823 • Letter: I
Question
I need help with this accounting problem.
Hialeah Guayabera Shirts distributes its products throughout South Florida. The company has three sales divisions and its division managers' bonuses are based on division income. The following table shows income by division, before allocated department costs Total East Central West Income $ 386,000 165,000 $120,000 $101,000 Computer Personnel $ 240,000 100,000 Service department costs. Cost allocations are based on the following distribution of services provided/received Services provider Services receive Computer Personnel Services East Central West Computer Services Personnel 25% 33% 20% 33% 20% 22% 4% 12% a. Prepare a cost allocation distribution table similar to the one in the class exercises for problem P7-31, using the Direct Method, rounding to the nearest dollar b. Prepare a performance report using cost allocations based on the direct method. (See bottom of pg. 258.) One of the managers is concerned about his performance report and his inability to earn a bonus. He belives that his division is allocated an unfair amount of service department costs, particularly Computer Services costs. He belives that the Personnel department's use of Computer Services costs should be taken into consideration and the allocations should be changed. The situation is made more tense because, in sales meetings, another division manager is quick to point out in front of everyone that he always makes his bonus c. Which division manager is unhappy? d. Revise the cost allocation distribution table using the Step Method e. Prepare a revised performance report using cost allocations based on the step method f. Now, as a manager, what will you do?Explanation / Answer
Direct method
Performance report
Manager of cost division is unhappy since net income is loss
Step down method
Manager of cost division shall convince the management to apply step down method of cost allocation
Sales Division Service Department East west Cost Computer Personal Service Department Cost 0 0 0 240000 100000 Allocation of Cost Computer 240000 ratio 20:20:20 80000 80000 80000 -240000 Personal 100000 ratio 33:33:22 37500 37500 25000 -100000 Cost Allocated 117500 117500 105000