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Gipps Business College (GBC) has two degrees programs, undergraduate (UG), graduate (GRAD) and three service...

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Accounting

Gipps Business College (GBC) has two degrees programs, undergraduate (UG), graduate (GRAD) and three service departments, information technology (IT), Event Planning (EP), and Career Services (CS). The CFO of GBC is conducting a profitability analysis of the two programs and wants to include the appropriate costs of the service departments in the cost of the two degree programs. As part of the analysis, the CFO has collected the following usage patterns of the service departments over the last two years.

Supplying department Using Departments

IT EP CS UG GRAD

IT 0 10% 20% 40% 30%

EP 0 0 25% 25% 50%

CS 0 0 0 60% 40%

Direct Costs $119,000 $111,000 $163,000 TBD TBD

a. The CFO is unsure what the best way to allocate the cost and has asked you for allocations to the UG and GRAD programs using:

1. The Direct Method

2. The Step Method starting with IT, followed by EP, and then CS.

3. The Reciprocal Method.

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