Answer Happy

Sportz, Inc., manufactures athletic shoes and athletic clothing for both amateur and professional athletes. The company has two product lines (clothing and shoes), which are produced in separate manufacturing facilities: however, both manufacturing facilities share the same support services for information technology and human resources. The following shows total costs for each manufacturing facility and for each support department. Information technology (IT) Human resources (HR) Clothing Shoes Total costs Variable Costs $ 600 $ 400 $2,500 $3,000 $6,500 ww,900 Fixed Costs $ 2,000 $1,000 $ 8,000 $ 4,500 $15,500 Department Clothing Shoes Information technology Human resources Data on the bases, by department, are given as follows: IT Hours Used 5,040 3,960 Total Costs by Department (in thousands) 3,000 $ 2,600 $ 1,400 The total costs of the support departments (IT and HR) are allocated to the production departments (clothing and shoes) using a single rate based on the following: $10,500 $ 7.500 Information technology: Number of IT labor-hours worked by department Human resources: Number of employees supported by department $22.000 922,000 Number of Employees 220 88 92 Required: 1. What are the total costs of the production departments (clothing and shoes) after the support department costs of information technology and human resources have been allocated using (a) the direct method, (b) the step-down method (allocate information technology first), and (c) the reciprocal method? (20 marks) 2. Assume that all of the work of the IT department could be outsourced to an independent company for $97.50 per hour. If Sportz no longer operated its own IT department. 30% of the fixed costs of the IT department could be eliminated. Should Sportz outsource its IT services? (15 marks)