Campaign Events has two service division, design and printing. The service divisions provide materials to marketing and PR production lines of service for Campaign Events.
Campaign Events has two service division, design and printing. The service divisions provide materials to marketing and PR production lines of service for Campaign Events. The Company has been very busy in 2016 and has not had time to quantify the profitability of each production line. It has enlistedyour help to ascertain where the company is most profitable.
The design division allocates its costs based on client billable hours. The printing division bills its costs based on hours of print time.
You gather the following information for the 12 months ended 9/30/16:
| Billable Hours | Print time | Revenue silled to clients | Department costs |
Design | 1200 | 1250 | n/a | $75,000 |
Printing | 900 | 3500 | n/a | $1,00,000 |
Marketing | 1000 | 2000 | $5,00,000 | $2,50,000 |
Production | 2500 | 3000 | $6,50,000 | $3,00,000 |
Required:
A) Calculate the allocations from the design and printing departments using the following method:
1) Direct method
2) Step-down method with Design allocated first;
3) Reciprocal method.
B) Produce divisional financial statements for each method. Format should be:
| Design | Printing | Marketing | Production | Total Company |
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Costs |
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+Allocations In |
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-Allocations out |
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Net profit |
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C) Which method do you propose the company adopt and why? This is your conclusion.
10 years ago
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