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3004 Assignment 1 Model Answer
3004 Assignment 1 Model Answer
AS IS GOVT CORP
overhead costs before allocation $600,000 $2,400,000 $8,756,000 $12,452,000
Alloc. of AS costs
(0.25, 0.40, 0.35) (600,000) 150,000 $ 240,000 $ 210,000
Alloc. of IS costs
(30/90, 60/90) (2,550,000) 850,000 1,700,000
$ 0 $ 0 $9,846,000 $14,362,000
3. The Reciprocal Method: 40
The three methods differ in the level of support department cost allocation across support departments.
The level of reciprocal service by support departments is material. Administrative Services supplies 25% of
its services to Information Systems. Information Systems supplies 10% of its services to Administrative
Services. The reciprocal method recognizes all the interactions and is thus the most accurate.