Textbook Problem

(Appendix 4B) Support Department Cost Allocation

MedServices Inc. is divided into two operating departments: Laboratory and Tissue Pathology. The company allocates delivery and accounting costs to each operating department. Delivery costs include the costs of a fleet of vans and drivers that drive throughout the state each day to clinics and doctors’ offices to pick up samples and deliver them to the centrally located laboratory and tissue pathology offices. Delivery costs are allocated on the basis of number of samples. Accounting costs are allocated on the basis of the number of transactions processed. No effort is made to separate fixed and variable costs; however, only budgeted costs are allocated. Allocations for the coming year are based on the following data:

Required:

1. 1. Assign the support department costs by using the direct method. (Note: Round allocation ratios to four decimal places.)
2. 2. Assign the support department costs by using the sequential method, allocating accounting costs first. (Note: Round allocation ratios to four decimal places.)