Community Recovery Clinic offers two types of services: inpatient and outpatient.

They have two types of service departments: administration and housekeeping.

Direct costs of nursing care and supplies can be traced directly to the patient.

Number of Square

Departments Employees Footage

Inpatient 40 20.000

Outpatient 20 10,000

Administration 10 5,000

Housekeeping 5 5,000

Overhead costs for each department are as follows:

Administration $500,000

Housekeeping $200,000

Administration is allocated based on number of employees and housekeeping is based on square footage. Carry out calculations to four decimal places.

Required:

1. Allocate service department costs using the direct method.

2. Allocate service department costs using the reciprocal method.

3. What is the other method of allocation?

4. Briefly discuss the pros and cons of each method and select the best one.