Assume that the company allocates service department costs to production departments using the direct method. What amount of Information Systems (IS) Department costs will be allocated to the Commercial Department? Assume the same method of allocation as in requirement (a). What amount of Personnel Department costs is allocated to the Residential Department? Assuming that the company allocates service department costs to other departments using the step method (starting with Administration and then IS), what amount of Administration Department costs is allocated to the IS Department? Assume the same method of allocation as in requirement (c). What amount of IS Department costs is allocated to Administration?
Assume that the company allocates service department costs to production departments using the direct method. What amount of Information Systems (IS) Department costs will be allocated to the Commercial Department? Assume the same method of allocation as in requirement (a). What amount of Personnel Department costs is allocated to the Residential Department? Assuming that the company allocates service department costs to other departments using the step method (starting with Administration and then IS), what amount of Administration Department costs is allocated to the IS Department? Assume the same method of allocation as in requirement (c). What amount of IS Department costs is allocated to Administration?
Managerial Accounting
15th Edition
ISBN:9781337912020
Author:Carl Warren, Ph.d. Cma William B. Tayler
Publisher:Carl Warren, Ph.d. Cma William B. Tayler
Chapter5: Support Department And Joint Cost Allocation
Section: Chapter Questions
Problem 1CMA
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Western Services has three service departments: Information Systems (IS), Personnel, and Administration. There are two operating departments: Residential and Commercial. A summary of costs and other data for each department prior to allocation of service department costs for the latest period follows:
IS | Personnel | Administration | Residential | Commercial | |
---|---|---|---|---|---|
Number of IS service tickets | 130 | 160 | 115 | 1,410 | 940 |
Number of employees | 75 | 80 | 67 | 138 | 162 |
Square footage occupied | 3,900 | 8,000 | 3,800 | 16,100 | 69,500 |
The costs of the service departments and the allocation basis for each department follow.
Department | Direct Cost | Allocation Base |
---|---|---|
Information Systems (IS) | $ 25,000 | IS service tickets |
Personnel | 32,000 | Employees |
Administration | 28,700 | Square footage occupied |
Required:
- Assume that the company allocates service department costs to production departments using the direct method. What amount of Information Systems (IS) Department costs will be allocated to the Commercial Department?
- Assume the same method of allocation as in requirement (a). What amount of Personnel Department costs is allocated to the Residential Department?
- Assuming that the company allocates service department costs to other departments using the step method (starting with Administration and then IS), what amount of Administration Department costs is allocated to the IS Department?
- Assume the same method of allocation as in requirement (c). What amount of IS Department costs is allocated to Administration?
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Step 1: Introduction to direct and step method of cost allocation:
VIEWStep 2: Requirement 1- Determining the cost allocation to commercial department by IS department:
VIEWStep 3: Requirement 2- Determining the cost allocation to residential department by personnel department:
VIEWStep 4: Requirement 3- Determining the cost allocation to IS department by administration department:
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