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Chapter 04 - Appendix B Service Department Allocations
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1 T/F M x x 6/e: 16-1 Authors2 T/F E x x 7/e: 16-14 Authors3 T/F E x 6/e: 16-14 Authors4 T/F E x New,3/31/98,C E.N.
5Conceptual
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12 M/C M x 6/e: 16-28 Authors
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14 M/C E x10/16/2004 Single MC G4 E.N.
15 M/C E x 10/16/2004 Single MC E.N.
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Chapter 04 - Appendix B Service Department Allocations
H416 M/C E x 10/16/2004 Single MC I4 E.N.
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37-38 Multipart M/C E x 10/16/2004 Multi MC H4 E.N.39 Problem M x x 6/e: 16-2 Authors40 Problem E x 10/15/2004 Problem A4 E.N.41 Problem E x 10/15/2004 Problem B4 E.N.42 Problem E x 10/15/2004 Problem C4 E.N.43 Problem E x 10/15/2004 Problem D4 E.N.44 Problem M x 7/e: 16-53 clone Authors45 Problem E x 10/16/2004 Problem E4 E.N.46 Problem E x 10/16/2004 Problem F4 E.N.47 Problem E x 10/16/2004 Problem G4 E.N.48 Problem E x 10/16/2004 Problem H4 E.N.
4B-2
Chapter 04 - Appendix B Service Department Allocations
Chapter 04Appendix B Service Department Allocations
True / False Questions
1. The step-down method allocates more total cost to operating departments than does the direct method. True False
2. The step-down method of allocation is more accurate than the direct method. True False
3. The direct allocation method ignores the cost of interdepartmental services provided among service departments and allocates all costs directly to operating departments. True False
4. Under the direct method of allocating service department costs, reciprocal services provided among service departments are ignored. True False
Multiple Choice Questions
5. Gatlin Company has several service departments that provide services for each other as well as for operating departments within the company. The method that would be least accurate in allocating the company's service department costs would be: A. by the step-down method.B. by the direct method.C. by cost behavior.D. by the reciprocal method.
4B-3
Chapter 04 - Appendix B Service Department Allocations
6. The step-down method of allocating service department costs: A. is a less accurate method of allocation than the direct method.B. can't be used when a company has more than two service departments.C. is a simpler allocation method than the direct method.D. ignores some interdepartmental services.
7. Hidden Corporation uses the direct method to allocate service department costs to operating departments. The company has two service departments, Administrative and Facilities, and two operating departments, Assembly and Wholesaling.
Administrative costs are allocated on the basis of employee hours and Facilities costs are allocated on the basis of space occupied. The total Wholesaling Department cost after the allocations of service department costs is closest to: A. $389,876B. $378,900C. $392,340D. $392,544
4B-4
Chapter 04 - Appendix B Service Department Allocations
8. Balthazar Clinic uses the direct method to allocate service department costs to operating departments. The clinic has two service departments, Personnel and Support, and two operating departments, Prenatal and Pediatrics.
Personnel Department costs are allocated on the basis of employee hours and Support Department costs are allocated on the basis of space occupied in square feet. The total Pediatrics Department cost after the allocations of service department costs is closest to: A. $304,880B. $310,281C. $312,290D. $312,554
9. Amorim Corporation uses the direct method to allocate service department costs to operating departments. The company has two service departments, Data Processing and Personnel, and two operating departments, Assembly and Finishing.
Data Processing Department costs are allocated on the basis of computer workstations and Personnel Department costs are allocated on the basis of employees. The total amount of Data Processing Department cost allocated to the two operating departments is closest to: A. $34,944B. $145,367C. $31,329D. $25,774
4B-5
Chapter 04 - Appendix B Service Department Allocations
10. The direct method is used by Colquitt Publishing, Inc., to allocate service department costs to operating departments. The company has two service departments, Information Technology and Personnel, and two operating departments, Prepress and Printing.
Information Technology Department costs are allocated on the basis of computer workstations and Personnel Department costs are allocated on the basis of employees. The total Prepress Department cost after service department allocations is closest to: A. $516,249B. $522,964C. $520,389D. $510,887
11. Silton Surgical Hospital uses the direct method to allocate service department costs to operating departments. The hospital has two service departments, Telecommunications and Administration, and two operating departments, Surgery and Recovery.
Telecommunications Department costs are allocated on the basis of the number of telecommunications ports in departments and Administration Department costs are allocated on the basis of employees. The total Surgery Department cost after service department allocations is closest to: A. $278,389B. $276,783C. $274,208D. $269,621
4B-6
Chapter 04 - Appendix B Service Department Allocations
12. Rich Company has a Custodial Services department which services the company's Maintenance department and two operating departments, Machinery and Milling. Costs of Custodial Services are allocated to the other departments on the basis of square footage of space occupied. The amount of space occupied by each department is given below:
Budgeted costs in Custodial Services amount to $86,400. The amount of Custodial Services cost allocated to Maintenance under the step-down method would be: A. $5,184B. $5,400C. $0D. $5,760
13. Bankert Corporation uses the step-down method to allocate service department costs to operating departments. The company has two service departments, General Management and Physical Plant, and two operating departments, Sales and After-Sales. Data concerning those departments follow:
General Management Department costs are allocated first on the basis of employee time and Physical Plant Department costs are allocated second on the basis of space occupied. The total After-Sales Department cost after allocations is closest to: A. $307,594B. $300,100C. $310,240D. $310,376
4B-7
Chapter 04 - Appendix B Service Department Allocations
14. Poteete, Inc., allocates service department costs to operating departments using the step-down method. The company has two service departments, Administration and Physical Plant, and two operating departments, Assembly and Testing. Data concerning those departments follow:
Administration Department costs are allocated first on the basis of employee time and Physical Plant Department costs are allocated second on the basis of space occupied. The total Testing Department cost after allocations is closest to: A. $539,189B. $526,180C. $538,930D. $537,376
15. Diprima Clinic uses the step-down method to allocate service department costs to operating departments. The clinic has two service departments, Personnel and Information Technology (IT), and two operating departments, Family Medicine and Pediatric. Data concerning those departments follow:
Personnel costs are allocated first on the basis of employees and IT costs are allocated second on the basis of PCs. The total Pediatric Department cost after allocations is closest to: A. $233,732B. $238,715C. $238,298D. $205,318
4B-8
Chapter 04 - Appendix B Service Department Allocations
16. Stazenski Children's Clinic allocates service department costs to operating departments using the step-down method. The clinic has two service departments, Administration and Information Technology (IT), and two operating departments, Prenatal and Pediatric. Data concerning those departments follow:
Administration costs are allocated first on the basis of employees and IT costs are allocated second on the basis of PCs. The total Pediatric Department cost after allocations is closest to: A. $435,029B. $390,920C. $434,832D. $423,486
The Uinta Company has two service departments and two operating departments. The following data are available from last year:
The costs of service departments 1 and 2 are allocated on the basis of number of transactions and square feet occupied respectively. No distinction is made between fixed and variable costs.
17. Assuming that Uinta allocates service department costs by the direct method, the total overhead costs allocated from Department 1 to Department X are: A. $18,000B. $25,200C. $42,000D. $29,400
4B-9
Chapter 04 - Appendix B Service Department Allocations
18. Assuming that Uinta allocates service department costs by the direct method, the total overhead costs allocated from Department 2 to Department Y are: A. $22,400B. $16,800C. $42,000D. $14,000
19. Assume that Uinta allocates service department costs by the step-down method, starting with Department 1. The total overhead costs allocated from Department 1 to Department X are: A. $12,115B. $21,000C. $24,000D. $33,600
20. Assume that Uinta allocates service department costs by the step-down method, starting with Department 1. The total overhead costs allocated from Department 2 to Department Y are: A. $18,000B. $24,000C. $21,000D. $25,200
The Grand Company has budgeted departmental costs and operating activity in its four departments for the coming year as follows:
The company does not distinguish between fixed and variable service department costs. Custodial costs are allocated on the basis of square feet occupied. Repair costs are allocated on the basis of the number of repair requests.
4B-10
Chapter 04 - Appendix B Service Department Allocations
21. Assume Grand uses the direct allocation method. After all allocations, how much of the company's total overhead cost will be charged to the Production Department for the coming year? A. $43,400B. $46,200C. $45,941D. $41,728
22. Assume Grand uses the step-down allocation method with Custodial costs allocated first. After all allocations, how much of the company's total overhead cost will be charged to the company's Finishing Department for the coming year? A. $57,274B. $55,184C. $59,777D. $56,854
Reddin Corporation has two service departments, Administrative and Facilities, and two operating departments, Assembly and Customer Solutions.
The company uses the direct method to allocate service department costs to operating departments. Administrative costs are allocated on the basis of employee hours and Facilities costs are allocated on the basis of space occupied.
23. The total amount of Administrative Department cost allocated to the Assembly Department is closest to: A. $20,991B. $29,484C. $23,460D. $23,009
4B-11
Chapter 04 - Appendix B Service Department Allocations
24. The total Customer Solutions Department cost after the allocations of service department costs is closest to: A. $674,310B. $686,040C. $683,705D. $686,473
President Clinic has two service departments, Administrative and Support, and two operating departments, Adult Medicine and Pediatrics.
The clinic uses the direct method to allocate service department costs to operating departments. Administrative Department costs are allocated on the basis of employee hours and Support Department costs are allocated on the basis of space occupied in square feet.
25. The total amount of Administrative Department cost allocated to the Adult Medicine Department is closest to: A. $28,368B. $31,096C. $43,235D. $32,340
26. The total Pediatrics Department cost after the allocations of service department costs is closest to: A. $475,220B. $491,880C. $488,839D. $491,683
4B-12
Chapter 04 - Appendix B Service Department Allocations
Brannigan Corporation uses the direct method to allocate service department costs to operating departments. The company has two service departments, Information Technology and Personnel, and two operating departments, Fabrication and Customization.
Information Technology Department costs are allocated on the basis of computer workstations and Personnel Department costs are allocated on the basis of employees.
27. The total amount of Information Technology Department cost allocated to the two operating departments is closest to: A. $141,772B. $26,749C. $30,820D. $22,503
28. The total Fabrication Department cost after service department allocations is closest to: A. $604,655B. $606,735C. $599,122D. $602,460
4B-13
Chapter 04 - Appendix B Service Department Allocations
Enzor Surgical Hospital uses the direct method to allocate service department costs to operating departments. The hospital has two service departments, Information Technology and Administration, and two operating departments, Surgery and Recovery.
Information Technology Department costs are allocated on the basis of computer workstations and Administration Department costs are allocated on the basis of employees.
29. The total amount of Information Technology Department cost allocated to the two operating departments is closest to: A. $23,841B. $29,414C. $113,244D. $19,695
30. The total Surgery Department cost after service department allocations is closest to: A. $500,818B. $498,775C. $494,416D. $503,713
4B-14
Chapter 04 - Appendix B Service Department Allocations
Goodland Corporation uses the step-down method to allocate service department costs to operating departments. The company has two service departments, Service Department A and Service Department B, and two operating departments, Operating Department X and Operating Department Y. Data concerning those departments follow:
Service Department A costs are allocated first on the basis of allocation base A and Service Department B costs are allocated second on the basis of allocation base B.
31. In the first step of the allocation, the amount of Service Department A cost allocated to the Operating Department X is closest to: A. $9,760B. $20,608C. $19,800D. $18,032
32. The total Operating Department Y cost after allocations is closest to: A. $423,352B. $425,820C. $416,220D. $425,966
4B-15
Chapter 04 - Appendix B Service Department Allocations
Ponce Corporation, a manufacturer, uses the step-down method to allocate service department costs to operating departments. The company has two service departments, Administration and Facilities, and two operating departments, Assembly and Finishing. Data concerning those departments follow:
Administration Department costs are allocated first on the basis of labor hours and Facilities Department costs are allocated second on the basis of space occupied.
33. In the first step of the allocation, the amount of Administration Department cost allocated to the Assembly Department is closest to: A. $19,515B. $22,370C. $21,330D. $10,040
34. The total Finishing Department cost after allocations is closest to: A. $515,170B. $510,933C. $504,110D. $515,379
4B-16
Chapter 04 - Appendix B Service Department Allocations
Duda Clinic uses the step-down method to allocate service department costs to operating departments. The clinic has two service departments, Personnel and Information Technology (IT), and two operating departments, Family Medicine and Geriatric Medicine. Data concerning those departments follow:
Personnel costs are allocated first on the basis of employees and IT costs are allocated second on the basis of PCs.
35. In the first step of the allocation, the amount of Personnel Department cost allocated to the Family Medicine Department is closest to: A. $17,804B. $20,296C. $37,408D. $18,700
36. The total Geriatric Medicine Department cost after allocations is closest to: A. $163,616B. $188,179C. $194,726D. $194,717
4B-17
Chapter 04 - Appendix B Service Department Allocations
Deardurff Legal Services, LLC, uses the step-down method to allocate service department costs to operating departments. The firm has two service departments, Personnel and Information Technology (IT), and two operating departments, Family Law and Corporate Law. Data concerning those departments follow:
Personnel costs are allocated first on the basis of employees and IT costs are allocated second on the basis of PCs.
37. In the first step of the allocation, the amount of Personnel Department cost allocated to the Family Law Department is closest to: A. $20,121B. $13,937C. $15,637D. $14,430
38. The total Corporate Law Department cost after allocations is closest to: A. $417,451B. $417,540C. $410,562D. $394,660
4B-18
Chapter 04 - Appendix B Service Department Allocations
Essay Questions
39. Konosh Medical Clinic has two service departments, Building Services and Energy, and three operating departments, Pediatrics, Geriatrics, and Surgery. Konosh allocates the cost of Building Services on square footage and Energy on patient days. No distinction is made between variable and fixed costs. Budgeted operating data for last year follow:
Required:
a. Prepare a schedule to allocate service department costs to operating departments by the direct method. (Round all dollar amounts to the nearest whole dollar.)b. Prepare a schedule to allocate service department costs to operating departments by the step-down method, allocating Building Services first. (Round all dollar amounts to the nearest whole dollar.)
4B-19
Chapter 04 - Appendix B Service Department Allocations
40. Voltaire Corporation uses the direct method to allocate service department costs to operating departments. The company has two service departments, Administrative and Facilities, and two operating departments, Assembly and Finishing.
Administrative Department costs are allocated on the basis of employee hours and Facilities Department costs are allocated on the basis of space occupied.
Required:
Allocate the service department costs to the operating departments using the direct method.
4B-20
Chapter 04 - Appendix B Service Department Allocations
41. Mask Corporation uses the direct method to allocate its two service department costs to its two operating departments. Data concerning those departments follow:
Service Department A costs are allocated on the basis of allocation base A and Service Department B costs are allocated on the basis of allocation base B.
Required:
Allocate the service department costs to the operating departments using the direct method.
4B-21
Chapter 04 - Appendix B Service Department Allocations
42. The direct method is used by Savela Clinic to allocate its service department costs to its operating departments. Data concerning those departments follow:
Information Technology costs are allocated on the basis of computers and Personnel costs are allocated on the basis of employees.
Required:
Allocate the service department costs to the operating departments using the direct method.
4B-22
Chapter 04 - Appendix B Service Department Allocations
43. Essex Consultancy uses the direct method to allocate its service department costs to its operating departments. The company has two service departments, Information Technology and Administration, and two operating departments, Corporate Practice and Government Practice. Data concerning those departments follow:
Information Technology Department costs are allocated on the basis of computers and Administration Department costs are allocated on the basis of employees.
Required:
Allocate the service department costs to the operating departments using the direct method.
4B-23
Chapter 04 - Appendix B Service Department Allocations
44. Flinders Company has two service departments, Factory Administration and Maintenance, and two operating departments. Selected information relating to these departments is given below:
The company allocates service department costs by the step-down method. Factory Administration costs are allocated first on the basis of number of employees, and then Maintenance costs are allocated on the basis of total labor hours.
Required:
Prepare a schedule showing the allocation of service department costs to other departments.
4B-24
Chapter 04 - Appendix B Service Department Allocations
45. Vitro Corporation has two service departments, Service Department A and Service Department B, and two operating departments, Operating Department X and Operating Department Y.
The company uses the step-down method to allocate service department costs to operating departments. Service Department A costs are allocated first on the basis of allocation base A and Service Department B costs are allocated second on the basis of allocation base B.
Required:
Allocate the service department costs to the operating departments using the step-down method.
4B-25
Chapter 04 - Appendix B Service Department Allocations
46. Sobczynski Corporation uses the step-down method to allocate service department costs to operating departments. The company has two service departments, Administration and Facilities, and two operating departments, Assembly and Finishing.
Administration Department costs are allocated first on the basis of employee time and Facilities Department costs are allocated second on the basis of space occupied.
Required:
Allocate the service department costs to the operating departments using the step-down method.
4B-26
Chapter 04 - Appendix B Service Department Allocations
47. Grahe Emergency Care Hospital uses the step-down method to allocate service department costs to operating departments. The hospital has two service departments, Administration and Information Technology (IT), and two operating departments, Emergency Room and Intensive Care.
Administration Department costs are allocated first on the basis of employees and IT Department costs are allocated second on the basis of computers.
Required:
Allocate the service department costs to the operating departments using the step-down method.
4B-27
Chapter 04 - Appendix B Service Department Allocations
48. Chrisler Natal Clinic uses the step-down method to allocate service department costs to operating departments. The clinic has two service departments, Administration and Information Technology (IT), and two operating departments, Prenatal Care and Postnatal Care.
Administration Department costs are allocated first on the basis of employees and IT Department costs are allocated second on the basis of computers.
Required:
Allocate the service department costs to the operating departments using the step-down method.
4B-28
Chapter 04 - Appendix B Service Department Allocations
Chapter 04 Appendix B Service Department Allocations Answer Key
True / False Questions
1. The step-down method allocates more total cost to operating departments than does the direct method. FALSE
AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: ComprehensionLearning Objective: 04B-10 Allocate service department costs to operating departments using the direct methodLearning Objective: 04B-11 Allocate service department costs to operating departments using the step-down methodLevel: Medium
2. The step-down method of allocation is more accurate than the direct method. TRUE
AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: KnowledgeLearning Objective: 04B-10 Allocate service department costs to operating departments using the direct methodLearning Objective: 04B-11 Allocate service department costs to operating departments using the step-down methodLevel: Easy
3. The direct allocation method ignores the cost of interdepartmental services provided among service departments and allocates all costs directly to operating departments. TRUE
AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: KnowledgeLearning Objective: 04B-10 Allocate service department costs to operating departments using the direct methodLevel: Easy
4B-29
Chapter 04 - Appendix B Service Department Allocations
4. Under the direct method of allocating service department costs, reciprocal services provided among service departments are ignored. TRUE
AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: KnowledgeLearning Objective: 04B-10 Allocate service department costs to operating departments using the direct methodLevel: Easy
Multiple Choice Questions
5. Gatlin Company has several service departments that provide services for each other as well as for operating departments within the company. The method that would be least accurate in allocating the company's service department costs would be: A. by the step-down method.B. by the direct method.C. by cost behavior.D. by the reciprocal method.
AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: KnowledgeLearning Objective: 04B-10 Allocate service department costs to operating departments using the direct methodLearning Objective: 04B-11 Allocate service department costs to operating departments using the step-down methodLevel: Easy
6. The step-down method of allocating service department costs: A. is a less accurate method of allocation than the direct method.B. can't be used when a company has more than two service departments.C. is a simpler allocation method than the direct method.D. ignores some interdepartmental services.
AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: ComprehensionLearning Objective: 04B-10 Allocate service department costs to operating departments using the direct methodLearning Objective: 04B-11 Allocate service department costs to operating departments using the step-down methodLevel: Medium
4B-30
Chapter 04 - Appendix B Service Department Allocations
7. Hidden Corporation uses the direct method to allocate service department costs to operating departments. The company has two service departments, Administrative and Facilities, and two operating departments, Assembly and Wholesaling.
Administrative costs are allocated on the basis of employee hours and Facilities costs are allocated on the basis of space occupied. The total Wholesaling Department cost after the allocations of service department costs is closest to: A. $389,876B. $378,900C. $392,340D. $392,544
Allocation base for Administrative costs = 26,000 + 14,000 = 40,000Allocation base for Facilities costs = 33,000 + 6,000 = 39,000
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: ApplicationLearning Objective: 04B-10 Allocate service department costs to operating departments using the direct methodLevel: Easy
4B-31
Chapter 04 - Appendix B Service Department Allocations
8. Balthazar Clinic uses the direct method to allocate service department costs to operating departments. The clinic has two service departments, Personnel and Support, and two operating departments, Prenatal and Pediatrics.
Personnel Department costs are allocated on the basis of employee hours and Support Department costs are allocated on the basis of space occupied in square feet. The total Pediatrics Department cost after the allocations of service department costs is closest to: A. $304,880B. $310,281C. $312,290D. $312,554
Allocation base for Personnel costs = 23,000 + 13,000 = 36,000Allocation base for Support costs = 37,000 + 6,000 = 43,000
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: ApplicationLearning Objective: 04B-10 Allocate service department costs to operating departments using the direct methodLevel: Easy
4B-32
Chapter 04 - Appendix B Service Department Allocations
9. Amorim Corporation uses the direct method to allocate service department costs to operating departments. The company has two service departments, Data Processing and Personnel, and two operating departments, Assembly and Finishing.
Data Processing Department costs are allocated on the basis of computer workstations and Personnel Department costs are allocated on the basis of employees. The total amount of Data Processing Department cost allocated to the two operating departments is closest to: A. $34,944B. $145,367C. $31,329D. $25,774
Data Processing costs to be allocated = $34,944
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: ApplicationLearning Objective: 04B-10 Allocate service department costs to operating departments using the direct methodLevel: Easy
4B-33
Chapter 04 - Appendix B Service Department Allocations
10. The direct method is used by Colquitt Publishing, Inc., to allocate service department costs to operating departments. The company has two service departments, Information Technology and Personnel, and two operating departments, Prepress and Printing.
Information Technology Department costs are allocated on the basis of computer workstations and Personnel Department costs are allocated on the basis of employees. The total Prepress Department cost after service department allocations is closest to: A. $516,249B. $522,964C. $520,389D. $510,887
Allocation base for Information Technology costs = 59 + 38 = 97Allocation base for Facilities costs = 106 + 33 = 139
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: ApplicationLearning Objective: 04B-10 Allocate service department costs to operating departments using the direct methodLevel: Easy
4B-34
Chapter 04 - Appendix B Service Department Allocations
11. Silton Surgical Hospital uses the direct method to allocate service department costs to operating departments. The hospital has two service departments, Telecommunications and Administration, and two operating departments, Surgery and Recovery.
Telecommunications Department costs are allocated on the basis of the number of telecommunications ports in departments and Administration Department costs are allocated on the basis of employees. The total Surgery Department cost after service department allocations is closest to: A. $278,389B. $276,783C. $274,208D. $269,621
Allocation base for Telecommunication costs = 49 + 49 = 98Allocation base for Administration costs = 49 + 48 = 97
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: ApplicationLearning Objective: 04B-10 Allocate service department costs to operating departments using the direct methodLevel: Easy
4B-35
Chapter 04 - Appendix B Service Department Allocations
12. Rich Company has a Custodial Services department which services the company's Maintenance department and two operating departments, Machinery and Milling. Costs of Custodial Services are allocated to the other departments on the basis of square footage of space occupied. The amount of space occupied by each department is given below:
Budgeted costs in Custodial Services amount to $86,400. The amount of Custodial Services cost allocated to Maintenance under the step-down method would be: A. $5,184B. $5,400C. $0D. $5,760
Allocation rate for Custodial services costs = Cost to be allocated Allocation base= $86,400 (9,000 square feet + 45,000 square feet + 90,000 square feet) =$0.60 per square footCustodial services department cost allocated to Maintenance = $0.60 per square foot 9,000 square feet = $5,400
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: ApplicationLearning Objective: 04B-11 Allocate service department costs to operating departments using the step-down methodLevel: Medium
4B-36
Chapter 04 - Appendix B Service Department Allocations
13. Bankert Corporation uses the step-down method to allocate service department costs to operating departments. The company has two service departments, General Management and Physical Plant, and two operating departments, Sales and After-Sales. Data concerning those departments follow:
General Management Department costs are allocated first on the basis of employee time and Physical Plant Department costs are allocated second on the basis of space occupied. The total After-Sales Department cost after allocations is closest to: A. $307,594B. $300,100C. $310,240D. $310,376
Allocation base for General Management costs = 2,000 + 33,000 + 13,000 = 48,000Allocation base for Physical Plant costs = 33,000 + 8,000 = 41,000
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: ApplicationLearning Objective: 04B-11 Allocate service department costs to operating departments using the step-down methodLevel: Easy
4B-37
Chapter 04 - Appendix B Service Department Allocations
14. Poteete, Inc., allocates service department costs to operating departments using the step-down method. The company has two service departments, Administration and Physical Plant, and two operating departments, Assembly and Testing. Data concerning those departments follow:
Administration Department costs are allocated first on the basis of employee time and Physical Plant Department costs are allocated second on the basis of space occupied. The total Testing Department cost after allocations is closest to: A. $539,189B. $526,180C. $538,930D. $537,376
Allocation base for Administration costs = 1,000 + 26,000 + 17,000 = 44,000Allocation base for Physical Plant costs = 38,000 + 2,000 = 40,000
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: ApplicationLearning Objective: 04B-11 Allocate service department costs to operating departments using the step-down methodLevel: Easy
4B-38
Chapter 04 - Appendix B Service Department Allocations
15. Diprima Clinic uses the step-down method to allocate service department costs to operating departments. The clinic has two service departments, Personnel and Information Technology (IT), and two operating departments, Family Medicine and Pediatric. Data concerning those departments follow:
Personnel costs are allocated first on the basis of employees and IT costs are allocated second on the basis of PCs. The total Pediatric Department cost after allocations is closest to: A. $233,732B. $238,715C. $238,298D. $205,318
Allocation base for Personnel costs = 20 + 137 + 170 = 327Allocation base for IT costs = 129 + 104 = 233
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: ApplicationLearning Objective: 04B-11 Allocate service department costs to operating departments using the step-down methodLevel: Easy
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Chapter 04 - Appendix B Service Department Allocations
16. Stazenski Children's Clinic allocates service department costs to operating departments using the step-down method. The clinic has two service departments, Administration and Information Technology (IT), and two operating departments, Prenatal and Pediatric. Data concerning those departments follow:
Administration costs are allocated first on the basis of employees and IT costs are allocated second on the basis of PCs. The total Pediatric Department cost after allocations is closest to: A. $435,029B. $390,920C. $434,832D. $423,486
Allocation base for Administration costs = 26 + 115 + 169 = 310Allocation base for IT costs = 100 + 166 = 266
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: ApplicationLearning Objective: 04B-11 Allocate service department costs to operating departments using the step-down methodLevel: Easy
4B-40
Chapter 04 - Appendix B Service Department Allocations
The Uinta Company has two service departments and two operating departments. The following data are available from last year:
The costs of service departments 1 and 2 are allocated on the basis of number of transactions and square feet occupied respectively. No distinction is made between fixed and variable costs.
17. Assuming that Uinta allocates service department costs by the direct method, the total overhead costs allocated from Department 1 to Department X are: A. $18,000B. $25,200C. $42,000D. $29,400
Allocation base for Service Department 1 costs = 14,000 + 16,000 = 30,000Allocation base for Service Department 2 costs = 3,000 + 2,000 = 5,000
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: ApplicationLearning Objective: 04B-10 Allocate service department costs to operating departments using the direct methodLevel: Medium
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Chapter 04 - Appendix B Service Department Allocations
18. Assuming that Uinta allocates service department costs by the direct method, the total overhead costs allocated from Department 2 to Department Y are: A. $22,400B. $16,800C. $42,000D. $14,000
Allocation base for Service Department 1 costs = 14,000 + 16,000 = 30,000Allocation base for Service Department 2 costs = 3,000 + 2,000 = 5,000
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: ApplicationLearning Objective: 04B-10 Allocate service department costs to operating departments using the direct methodLevel: Medium
4B-42
Chapter 04 - Appendix B Service Department Allocations
19. Assume that Uinta allocates service department costs by the step-down method, starting with Department 1. The total overhead costs allocated from Department 1 to Department X are: A. $12,115B. $21,000C. $24,000D. $33,600
Allocation base for Service Department 1 costs = 12,000 + 14,000 + 16,000 = 42,000Allocation base for Service Department 2 costs = 3,000 + 2,000 = 5,000
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: ApplicationLearning Objective: 04B-11 Allocate service department costs to operating departments using the step-down methodLevel: Medium
4B-43
Chapter 04 - Appendix B Service Department Allocations
20. Assume that Uinta allocates service department costs by the step-down method, starting with Department 1. The total overhead costs allocated from Department 2 to Department Y are: A. $18,000B. $24,000C. $21,000D. $25,200
Allocation base for Service Department 1 costs = 12,000 + 14,000 + 16,000 = 42,000Allocation base for Service Department 2 costs = 3,000 + 2,000 = 5,000
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: ApplicationLearning Objective: 04B-11 Allocate service department costs to operating departments using the step-down methodLevel: Medium
The Grand Company has budgeted departmental costs and operating activity in its four departments for the coming year as follows:
The company does not distinguish between fixed and variable service department costs. Custodial costs are allocated on the basis of square feet occupied. Repair costs are allocated on the basis of the number of repair requests.
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Chapter 04 - Appendix B Service Department Allocations
21. Assume Grand uses the direct allocation method. After all allocations, how much of the company's total overhead cost will be charged to the Production Department for the coming year? A. $43,400B. $46,200C. $45,941D. $41,728
Allocation base for Custodial costs = 1,200 + 3,600 = 4,800Allocation base for Repair costs = 220 + 100 = 320
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: ApplicationLearning Objective: 04B-10 Allocate service department costs to operating departments using the direct methodLevel: Medium
4B-45
Chapter 04 - Appendix B Service Department Allocations
22. Assume Grand uses the step-down allocation method with Custodial costs allocated first. After all allocations, how much of the company's total overhead cost will be charged to the company's Finishing Department for the coming year? A. $57,274B. $55,184C. $59,777D. $56,854
Allocation base for Custodial costs = 200 + 1,200 + 3,600 = 5,000Allocation base for Repair costs = 220 + 100 = 320
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: ApplicationLearning Objective: 04B-11 Allocate service department costs to operating departments using the step-down methodLevel: Medium
Reddin Corporation has two service departments, Administrative and Facilities, and two operating departments, Assembly and Customer Solutions.
The company uses the direct method to allocate service department costs to operating departments. Administrative costs are allocated on the basis of employee hours and Facilities costs are allocated on the basis of space occupied.
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Chapter 04 - Appendix B Service Department Allocations
23. The total amount of Administrative Department cost allocated to the Assembly Department is closest to: A. $20,991B. $29,484C. $23,460D. $23,009
Allocation base for Administrative costs = 34,000 + 17,000 = 51,000Allocation base for Facilities costs = 31,000 + 6,000 = 37,000
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: ApplicationLearning Objective: 04B-10 Allocate service department costs to operating departments using the direct methodLevel: Easy
4B-47
Chapter 04 - Appendix B Service Department Allocations
24. The total Customer Solutions Department cost after the allocations of service department costs is closest to: A. $674,310B. $686,040C. $683,705D. $686,473
Allocation base for Administrative costs = 34,000 + 17,000 = 51,000Allocation base for Facilities costs = 31,000 + 6,000 = 37,000
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: ApplicationLearning Objective: 04B-10 Allocate service department costs to operating departments using the direct methodLevel: Easy
President Clinic has two service departments, Administrative and Support, and two operating departments, Adult Medicine and Pediatrics.
The clinic uses the direct method to allocate service department costs to operating departments. Administrative Department costs are allocated on the basis of employee hours and Support Department costs are allocated on the basis of space occupied in square feet.
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Chapter 04 - Appendix B Service Department Allocations
25. The total amount of Administrative Department cost allocated to the Adult Medicine Department is closest to: A. $28,368B. $31,096C. $43,235D. $32,340
Allocation base for Administrative costs = 33,000 + 17,000 = 50,000Allocation base for Support costs = 30,000 + 4,000 = 34,000
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: ApplicationLearning Objective: 04B-10 Allocate service department costs to operating departments using the direct methodLevel: Easy
4B-49
Chapter 04 - Appendix B Service Department Allocations
26. The total Pediatrics Department cost after the allocations of service department costs is closest to: A. $475,220B. $491,880C. $488,839D. $491,683
Allocation base for Administrative costs = 33,000 + 17,000 = 50,000Allocation base for Support costs = 30,000 + 4,000 = 34,000
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: ApplicationLearning Objective: 04B-10 Allocate service department costs to operating departments using the direct methodLevel: Easy
Brannigan Corporation uses the direct method to allocate service department costs to operating departments. The company has two service departments, Information Technology and Personnel, and two operating departments, Fabrication and Customization.
Information Technology Department costs are allocated on the basis of computer workstations and Personnel Department costs are allocated on the basis of employees.
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Chapter 04 - Appendix B Service Department Allocations
27. The total amount of Information Technology Department cost allocated to the two operating departments is closest to: A. $141,772B. $26,749C. $30,820D. $22,503
Information Technology costs to be allocated = $30,820
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: ApplicationLearning Objective: 04B-10 Allocate service department costs to operating departments using the direct methodLevel: Easy
28. The total Fabrication Department cost after service department allocations is closest to: A. $604,655B. $606,735C. $599,122D. $602,460
Allocation base for Information Technology costs = 47 + 45 = 92Allocation base for Support costs = 70 + 41 = 111
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: ApplicationLearning Objective: 04B-10 Allocate service department costs to operating departments using the direct methodLevel: Easy
4B-51
Chapter 04 - Appendix B Service Department Allocations
Enzor Surgical Hospital uses the direct method to allocate service department costs to operating departments. The hospital has two service departments, Information Technology and Administration, and two operating departments, Surgery and Recovery.
Information Technology Department costs are allocated on the basis of computer workstations and Administration Department costs are allocated on the basis of employees.
29. The total amount of Information Technology Department cost allocated to the two operating departments is closest to: A. $23,841B. $29,414C. $113,244D. $19,695
Information Technology costs to be allocated = $29,414
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: ApplicationLearning Objective: 04B-10 Allocate service department costs to operating departments using the direct methodLevel: Easy
4B-52
Chapter 04 - Appendix B Service Department Allocations
30. The total Surgery Department cost after service department allocations is closest to: A. $500,818B. $498,775C. $494,416D. $503,713
Allocation base for Information Technology costs = 40 + 37 = 77Allocation base for Administration costs = 61 + 32 = 93
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: ApplicationLearning Objective: 04B-10 Allocate service department costs to operating departments using the direct methodLevel: Easy
Goodland Corporation uses the step-down method to allocate service department costs to operating departments. The company has two service departments, Service Department A and Service Department B, and two operating departments, Operating Department X and Operating Department Y. Data concerning those departments follow:
Service Department A costs are allocated first on the basis of allocation base A and Service Department B costs are allocated second on the basis of allocation base B.
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Chapter 04 - Appendix B Service Department Allocations
31. In the first step of the allocation, the amount of Service Department A cost allocated to the Operating Department X is closest to: A. $9,760B. $20,608C. $19,800D. $18,032
Allocation base for Service Department A costs = 2,000 + 33,000 + 16,000 = 51,000Allocation base for Service Department B costs = 31,000 + 8,000 = 39,000
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: ApplicationLearning Objective: 04B-11 Allocate service department costs to operating departments using the step-down methodLevel: Easy
4B-54
Chapter 04 - Appendix B Service Department Allocations
32. The total Operating Department Y cost after allocations is closest to: A. $423,352B. $425,820C. $416,220D. $425,966
Allocation base for Service Department A costs = 2,000 + 33,000 + 16,000 = 51,000Allocation base for Service Department B costs = 31,000 + 8,000 = 39,000
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: ApplicationLearning Objective: 04B-11 Allocate service department costs to operating departments using the step-down methodLevel: Easy
Ponce Corporation, a manufacturer, uses the step-down method to allocate service department costs to operating departments. The company has two service departments, Administration and Facilities, and two operating departments, Assembly and Finishing. Data concerning those departments follow:
Administration Department costs are allocated first on the basis of labor hours and Facilities Department costs are allocated second on the basis of space occupied.
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Chapter 04 - Appendix B Service Department Allocations
33. In the first step of the allocation, the amount of Administration Department cost allocated to the Assembly Department is closest to: A. $19,515B. $22,370C. $21,330D. $10,040
Allocation base for Administration costs = 2,000 + 27,000 + 14,000 = 43,000Allocation base for Facilities costs = 34,000 + 9,000 = 43,000
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: ApplicationLearning Objective: 04B-11 Allocate service department costs to operating departments using the step-down methodLevel: Easy
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Chapter 04 - Appendix B Service Department Allocations
34. The total Finishing Department cost after allocations is closest to: A. $515,170B. $510,933C. $504,110D. $515,379
Allocation base for Administration costs = 2,000 + 27,000 + 14,000 = 43,000Allocation base for Facilities costs = 34,000 + 9,000 = 43,000
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: ApplicationLearning Objective: 04B-11 Allocate service department costs to operating departments using the step-down methodLevel: Easy
Duda Clinic uses the step-down method to allocate service department costs to operating departments. The clinic has two service departments, Personnel and Information Technology (IT), and two operating departments, Family Medicine and Geriatric Medicine. Data concerning those departments follow:
Personnel costs are allocated first on the basis of employees and IT costs are allocated second on the basis of PCs.
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Chapter 04 - Appendix B Service Department Allocations
35. In the first step of the allocation, the amount of Personnel Department cost allocated to the Family Medicine Department is closest to: A. $17,804B. $20,296C. $37,408D. $18,700
Allocation base for Personnel costs = 25 + 110 + 183 = 318Allocation base for IT costs = 81 + 136 = 217
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: ApplicationLearning Objective: 04B-11 Allocate service department costs to operating departments using the step-down methodLevel: Easy
4B-58
Chapter 04 - Appendix B Service Department Allocations
36. The total Geriatric Medicine Department cost after allocations is closest to: A. $163,616B. $188,179C. $194,726D. $194,717
Allocation base for Personnel costs = 25 + 110 + 183 = 318Allocation base for IT costs = 81 + 136 = 217
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: ApplicationLearning Objective: 04B-11 Allocate service department costs to operating departments using the step-down methodLevel: Easy
Deardurff Legal Services, LLC, uses the step-down method to allocate service department costs to operating departments. The firm has two service departments, Personnel and Information Technology (IT), and two operating departments, Family Law and Corporate Law. Data concerning those departments follow:
Personnel costs are allocated first on the basis of employees and IT costs are allocated second on the basis of PCs.
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Chapter 04 - Appendix B Service Department Allocations
37. In the first step of the allocation, the amount of Personnel Department cost allocated to the Family Law Department is closest to: A. $20,121B. $13,937C. $15,637D. $14,430
Allocation base for Personnel costs = 24 + 111 + 176 = 311Allocation base for IT costs = 91 + 163 = 254
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: ApplicationLearning Objective: 04B-11 Allocate service department costs to operating departments using the step-down methodLevel: Easy
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Chapter 04 - Appendix B Service Department Allocations
38. The total Corporate Law Department cost after allocations is closest to: A. $417,451B. $417,540C. $410,562D. $394,660
Allocation base for Personnel costs = 24 + 111 + 176 = 311Allocation base for IT costs = 91 + 163 = 254
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: ApplicationLearning Objective: 04B-11 Allocate service department costs to operating departments using the step-down methodLevel: Easy
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Chapter 04 - Appendix B Service Department Allocations
Essay Questions
39. Konosh Medical Clinic has two service departments, Building Services and Energy, and three operating departments, Pediatrics, Geriatrics, and Surgery. Konosh allocates the cost of Building Services on square footage and Energy on patient days. No distinction is made between variable and fixed costs. Budgeted operating data for last year follow:
Required:
a. Prepare a schedule to allocate service department costs to operating departments by the direct method. (Round all dollar amounts to the nearest whole dollar.)b. Prepare a schedule to allocate service department costs to operating departments by the step-down method, allocating Building Services first. (Round all dollar amounts to the nearest whole dollar.)
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Chapter 04 - Appendix B Service Department Allocations
a. Direct Method:Allocation base for Building Services costs = 6,000 + 18,000 + 12,000 = 36,000Allocation base for Energy costs = 5,500 + 7,700 + 8,800 = 22,000
b. Step Method:Allocation base for Building Services costs = 4,000 + 6,000 + 18,000 + 12,000 = 40,000Allocation base for Energy costs = 5,500 + 7,700 + 8,800 = 22,000
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: ApplicationLearning Objective: 04B-10 Allocate service department costs to operating departments using the direct methodLearning Objective: 04B-11 Allocate service department costs to operating departments using the step-down methodLevel: Medium
4B-63
Chapter 04 - Appendix B Service Department Allocations
40. Voltaire Corporation uses the direct method to allocate service department costs to operating departments. The company has two service departments, Administrative and Facilities, and two operating departments, Assembly and Finishing.
Administrative Department costs are allocated on the basis of employee hours and Facilities Department costs are allocated on the basis of space occupied.
Required:
Allocate the service department costs to the operating departments using the direct method.
Allocation base for Administrative costs = 30,000 + 18,000 = 48,000Allocation base for Facilities costs = 36,000 + 3,000 = 39,000
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: ApplicationLearning Objective: 04B-10 Allocate service department costs to operating departments using the direct methodLevel: Easy
4B-64
Chapter 04 - Appendix B Service Department Allocations
41. Mask Corporation uses the direct method to allocate its two service department costs to its two operating departments. Data concerning those departments follow:
Service Department A costs are allocated on the basis of allocation base A and Service Department B costs are allocated on the basis of allocation base B.
Required:
Allocate the service department costs to the operating departments using the direct method.
Allocation base for Service Department A costs = 21,000 + 14,000 = 35,000Allocation base for Service Department B costs = 38,000 + 3,000 = 41,000
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: ApplicationLearning Objective: 04B-10 Allocate service department costs to operating departments using the direct methodLevel: Easy
4B-65
Chapter 04 - Appendix B Service Department Allocations
42. The direct method is used by Savela Clinic to allocate its service department costs to its operating departments. Data concerning those departments follow:
Information Technology costs are allocated on the basis of computers and Personnel costs are allocated on the basis of employees.
Required:
Allocate the service department costs to the operating departments using the direct method.
Allocation base for Information Technology costs = 55 + 38 = 93Allocation base for Personnel costs = 103 + 37 = 140
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: ApplicationLearning Objective: 04B-10 Allocate service department costs to operating departments using the direct methodLevel: Easy
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Chapter 04 - Appendix B Service Department Allocations
43. Essex Consultancy uses the direct method to allocate its service department costs to its operating departments. The company has two service departments, Information Technology and Administration, and two operating departments, Corporate Practice and Government Practice. Data concerning those departments follow:
Information Technology Department costs are allocated on the basis of computers and Administration Department costs are allocated on the basis of employees.
Required:
Allocate the service department costs to the operating departments using the direct method.
Allocation base for Information Technology costs = 49 + 49 = 98Allocation base for Administration costs = 78 + 41 = 119
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: ApplicationLearning Objective: 04B-10 Allocate service department costs to operating departments using the direct methodLevel: Easy
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Chapter 04 - Appendix B Service Department Allocations
44. Flinders Company has two service departments, Factory Administration and Maintenance, and two operating departments. Selected information relating to these departments is given below:
The company allocates service department costs by the step-down method. Factory Administration costs are allocated first on the basis of number of employees, and then Maintenance costs are allocated on the basis of total labor hours.
Required:
Prepare a schedule showing the allocation of service department costs to other departments.
Allocation base for Factory Administration costs = 5 + 40 + 60 = 105Allocation base for Maintenance costs = 80,000 + 120,000 = 200,000
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: ApplicationLearning Objective: 04B-11 Allocate service department costs to operating departments using the step-down methodLevel: Medium
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Chapter 04 - Appendix B Service Department Allocations
45. Vitro Corporation has two service departments, Service Department A and Service Department B, and two operating departments, Operating Department X and Operating Department Y.
The company uses the step-down method to allocate service department costs to operating departments. Service Department A costs are allocated first on the basis of allocation base A and Service Department B costs are allocated second on the basis of allocation base B.
Required:
Allocate the service department costs to the operating departments using the step-down method.
Allocation base for Service Department A costs = 1,000 + 23,000 + 19,000 = 43,000Allocation base for Service Department B costs = 33,000 + 1,000 = 34,000
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: ApplicationLearning Objective: 04B-11 Allocate service department costs to operating departments using the step-down methodLevel: Easy
4B-69
Chapter 04 - Appendix B Service Department Allocations
46. Sobczynski Corporation uses the step-down method to allocate service department costs to operating departments. The company has two service departments, Administration and Facilities, and two operating departments, Assembly and Finishing.
Administration Department costs are allocated first on the basis of employee time and Facilities Department costs are allocated second on the basis of space occupied.
Required:
Allocate the service department costs to the operating departments using the step-down method.
Allocation base for Administration Department costs = 1,000 + 30,000 + 16,000 = 47,000Allocation base for Facilities Department costs = 33,000 + 7,000 = 40,000
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: ApplicationLearning Objective: 04B-11 Allocate service department costs to operating departments using the step-down methodLevel: Easy
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Chapter 04 - Appendix B Service Department Allocations
47. Grahe Emergency Care Hospital uses the step-down method to allocate service department costs to operating departments. The hospital has two service departments, Administration and Information Technology (IT), and two operating departments, Emergency Room and Intensive Care.
Administration Department costs are allocated first on the basis of employees and IT Department costs are allocated second on the basis of computers.
Required:
Allocate the service department costs to the operating departments using the step-down method.
Allocation base for Administration Department costs = 4 + 180 + 87 = 271Allocation base for IT Department costs = 72 + 60 = 132
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: ApplicationLearning Objective: 04B-11 Allocate service department costs to operating departments using the step-down methodLevel: Easy
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Chapter 04 - Appendix B Service Department Allocations
48. Chrisler Natal Clinic uses the step-down method to allocate service department costs to operating departments. The clinic has two service departments, Administration and Information Technology (IT), and two operating departments, Prenatal Care and Postnatal Care.
Administration Department costs are allocated first on the basis of employees and IT Department costs are allocated second on the basis of computers.
Required:
Allocate the service department costs to the operating departments using the step-down method.
Allocation base for Administration Department costs = 4 + 123 + 61 = 188Allocation base for IT Department costs = 39 + 44 = 83
AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementBloom's: ApplicationLearning Objective: 04B-11 Allocate service department costs to operating departments using the step-down methodLevel: Easy
4B-72