Data Performance, a computer software consulting company, hasthree major functional areas: computer programming, informationsystems consulting, and software training. Carol Bingham, a pricinganalyst, has been asked to develop total costs for the functionalareas. These costs will be used as a guide in pricing a newcontract. In computing these costs, Carol is considering threedifferent methods of the departmental allocation approach toallocate overhead costs: the direct method, the step method, andthe reciprocal method. She assembled the following data from thetwo service departments, information systems and facilities:
| Service Departments | | Production Departments |
| Information Systems | Facilities | Computer Programming | Information Systems Consulting | Software Training | Total |
| Budgeted overhead (base) | $79,000 | $31,000 | $169,000 | $195,000 | $126,000 | $600,000 |
| Information Systems (computer hours) | | 2,000 | 1,000 | 2,000 | 5,000 | 10,000 |
| Facilities (square feet) | 230 | | 690 | 690 | 690 | 2,300 |
|
Part 1
Required:
1. Using computer usage time as the allocation base for theinformation systems department and square feet of floor space asthe application base for the facilities department, apply overheadfrom these service departments to the production departments, usingthese three methods:
a. Direct method.
b. Step method (both for the information systems departmentgoing first and for the facilities department going first).
c. Reciprocal method.
