Olsson Consulting Services has three divisions and four support departments. The divisions (operating units) include Surveying, Engineering, and Testing. They provide a variety of services to their clients, and at the end of each fiscal year, the operating units are evaluated for profitability, and bonuses are given out to managers and employees of each division. The support department managers and employees are also given bonuses based on how well each division does and how much support they give to each division. The support departments include Administration (Admin), Human Resources (HR), Technology (IT), and Accounting (Acct). Each support department's costs are allocated based on how many hours each department provides to the other support departments and divisions. Information on the four support departments is as follows: The company is trying to determine which divisions should get bonuses. To earn a bonus, the division must earn a profit margin of at least 8%. The bonuses will then be paid the amount earned over the minimum profit margin percent. In your calculations, do not round any intermediary calculations and round your final answer to the nearest dollar. Instructions
a. If Olsson uses the direct method to allocate support costs, how much support costs would be allocated to each division?
b. Rank the divisions in order of operating costs and then use the step method to allocate support costs. How much support costs would be allocated to each division?
c. Rank the divisions in order of the largest percentage of support provided to other support departments and then use the step method to allocate support costs. How much support costs would be allocated to each division?
d. If Olsson uses the reciprocal method to allocate support costs, how much support costs would be allocated to each division?
e.Which divisions would receive bonuses based on (1) direct method, (2) step method - ranked by operating costs, (3) step method - ranked by support percentages, (4) reciprocal method? Prove your results with calculations.
f.Which method do you believe Olsson should use to allocate the support costs and why?

Question

Olsson Consulting Services has three divisions and four support departments. The divisions (operating units) include Surveying, Engineering, and Testing. They provide a variety of services to their clients, and at the end of each fiscal year, the operating units are evaluated for profitability, and bonuses are given out to managers and employees of each division. The support department managers and employees are also given bonuses based on how well each division does and how much support they give to each division. The support departments include Administration (Admin), Human Resources (HR), Technology (IT), and Accounting (Acct). Each support department's costs are allocated based on how many hours each department provides to the other support departments and divisions. Information on the four support departments is as follows:  The company is trying to determine which divisions should get bonuses. To earn a bonus, the division must earn a profit margin of at least 8%. The bonuses will then be paid the amount earned over the minimum profit margin percent. In your calculations, do not round any intermediary calculations and round your final answer to the nearest dollar. Instructions 
a. If Olsson uses the direct method to allocate support costs, how much support costs would be allocated to each division?
b. Rank the divisions in order of operating costs and then use the step method to allocate support costs. How much support costs would be allocated to each division?
c. Rank the divisions in order of the largest percentage of support provided to other support departments and then use the step method to allocate support costs. How much support costs would be allocated to each division?
d. If Olsson uses the reciprocal method to allocate support costs, how much support costs would be allocated to each division?
e.Which divisions would receive bonuses based on (1) direct method, (2) step method - ranked by operating costs, (3) step method - ranked by support percentages, (4) reciprocal method? Prove your results with calculations. 
f.Which method do you believe Olsson should use to allocate the support costs and why?

Quizplus · Accepted Answer

The Answer of Olsson Consulting Services has three divisions and four support departments. The divisions (operating units) include Surveying, Engineering, and Testing. They provide a variety of services to their clients, and at the end of each fiscal year, the operating units are evaluated for profitability, and bonuses are given out to managers and employees of each division. The support department managers and employees are also given bonuses based on how well each division does and how much support they give to each division. The support departments include Administration (Admin), Human Resources (HR), Technology (IT), and Accounting (Acct). Each support department's costs are allocated based on how many hours each department provides to the other support departments and divisions. Information on the four support departments is as follows:  The company is trying to determine which divisions should get bonuses. To earn a bonus, the division must earn a profit margin of at least 8%. The bonuses will then be paid the amount earned over the minimum profit margin percent. In your calculations, do not round any intermediary calculations and round your final answer to the nearest dollar. Instructions 
a. If Olsson uses the direct method to allocate support costs, how much support costs would be allocated to each division?
b. Rank the divisions in order of operating costs and then use the step method to allocate support costs. How much support costs would be allocated to each division?
c. Rank the divisions in order of the largest percentage of support provided to other support departments and then use the step method to allocate support costs. How much support costs would be allocated to each division?
d. If Olsson uses the reciprocal method to allocate support costs, how much support costs would be allocated to each division?
e.Which divisions would receive bonuses based on (1) direct method, (2) step method - ranked by operating costs, (3) step method - ranked by support percentages, (4) reciprocal method? Prove your results with calculations. 
f.Which method do you believe Olsson should use to allocate the support costs and why?

Olsson Consulting Services Has Three Divisions and Four Support Departments