Chapter 6: Departmental costing and cost allocation

Problem 6.6

Return to the direct method of cost allocation and use the same cost drivers as specified in problem 6.4 for the general administration and facilities departments. However, assume that $2,000,000 of financial services costs are related to billing and managerial reporting and $1,000,000 are related to payroll and personnel management activities.

A. Devise and implement a cost-allocation scheme that recognizes that the financial services department has two widely different functions.