Allocating costs of service centers to operating departments—direct method Napper Trust Corporation has two service departments: actuary and economic analysis. Napper also has three operating departments: annuity, fund management, and employee benefit services. The annual costs of operating the service departments are $520,000 for actuary and $640,000 for economic analysis. Napper uses the direct method to allocate service center costs to operating departments.

Other relevant data follow.

Required

a. Use operating costs as the cost driver for allocating service center costs to operating departments.

b. Use revenue as the cost driver for allocating service center costs to operating departments.
Cost Accumulation, Tracing, and Allocation 175 PROBLEMS—SERIES A All Problems in Series A are available with McGraw-Hill’s Homework Manager®.