Michigan University offers only high-tech graduate-level programs. Michigan has
ID: 2516215 • Letter: M
Question
Michigan University offers only high-tech graduate-level programs. Michigan has two principal operating departments, Engineering and Computer Sciences, and two support departments, Facility and Technology Maintenance and Enrollment Services. The base used to allocate facility and technology maintenance is budgeted total maintenance hours. The base used to allocate enrollment services is number of credit hours for a department. The Facility and Technology Maintenance budget is $250,000, while the Enrollment Services budget is $850,000. The following chart summarizes budgeted amounts and allocation- base amounts used by each department: Services Provided: (Annually) Computer F&T; Budget EngineeringsciencesMaintenance Enrollment Service Engineering$4,500,000 omputer $2,400,000 ciences F&T; (in hours) Enrollment aintenance $250,000 1,000 5,000 Zero 8,000 $850,000 20,000 35,000 4,000 Zero ervice (in credit hrs) 1) What is the costs of the Engineering Department under Direct, Step Down, Reciprocal Methods? DIRECT: ANSWER STEP DOWN: ANSWER RECIPRCAL: ANSWER 2) Which method should Michigan use and why?Explanation / Answer
A. Under Direct Method Allocation of Support Department’s Cost to Engineering and Social Science Operating Department Budget Engineering Computer Science Allocation of F&T Maintenance Dept. Cost on the basis of service hours (1000: 5000) $250,000 $41,667 $208,333 Allocation of Enrollment Service Dept. cost on the basis of credit hours (20,000 : 35,000) $850,000 $309,091 $540,909 B. Step-Down Method Allocation of Support Department’s Cost to Engineering and Social Science Operating Department (Step Down Method) Engineering Computer Science F&T Maintenance Enrollment Service Overhead Cost as given in the question $250,000 $850,000 Enrollment Service Dept Overheads is distributed (in credit hrs) (20:35:4:0) 288,136 504,237 57,267 ($850,000) F&T Maintenance Dept total overhead is distributed in the ratio (20:35) 111,733 195,534 ($307,267) 0 399,869 699,771 0 0 C. Reciprocal Method F&T Maintainance Enrollment Service In Hours Proportion in Credit Hour Proportion F&T Maintainance 4000 4/55 Enrollment Service 8000 8/14 Engineering 1000 1/14 20000 20/55 Computer Science 5000 5/14 35000 35/55 Total 14000 55000 Allocation of Support Department’s Cost to Engineering and Social Science Operating Department (Reciprocal Method) Engineering Computer Science F&T Maintenance Enrollment Service Overhead Cost as given in the question $4,500,000 $2,400,000 $250,000 $850,000 F&T Maintainace Cost Allocated $23,238 $116,193 -$325,339 $185,908 (325339*1/14) (325339*5/14) (325339*8/14) Enrollment Service Cost Allocated $376,694.00 $659,214.00 $75,339.00 -$1,035,908.00 (1035908*20/55) (1035887*35/55) (1035908*4/55) $4,899,932 $3,175,407 $0 $0 Working Note: Computation of Total Cost allocated to both F&T Maint. & Enrollment Service Department (a) Total F&T Maintenance cost = F&T Maintenance cost + cost allocated to F&T maintenance from Enrollment Service (b) Total Enrollment Service cost = Enrollment Service cost + cost allocated to Enrollment service from maintenance Total F&T Maint Cost= $250000+4/55 X total Enrollment Service Cost Total Enrollment Service Cost= $850000 + 8/14 X total F&T Maintainance Cost IF First it, will compted for F&T Main t Cost Total F&T Maint Cost= $250000+4/55 X ($850000+ 8/14 total F&T Maintainance Cost) Let assume= F&T Maintainace Cost=A A=$250000+ 4/55($850000+8/14A) A= $250000+4/55*850000+4/55*8/14A A-4/55*8/14A=311818 A-0.04156A=311818 A=311818/0.95844=$325339 Hence , Total F&T Maintainace Cost will be $325339 Total Enrollment Service Cost= $850000+8/14*325339=$1035908 2) Reciprocal Method should be used because service department cost will be properly allocated on the respective department