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Service Department Costs [Service Department Allocation] A company has two operating divislions: Perishable Foods and Household Goods. The company allocates personnel and accounting costs to each operating division. Personnel costs are allocated en the basis of the number of employees Accounting costs are allocated on the basis of the number of transactions processed. Allocations for a coming year are based on the following data Service Departmemt Personnel 9mating Diviions Nousehold Goods Perihable Foed s 80,000 Accounting S 50.000 s205,000 Overhead costs $100.000 80 60 Number of employees 50 60 3000 5.000 2,000 200 Transaction processed 199 32 225,2 8 (1) Assume that service departments do not serve themselves. Alocate the service costs using the direct method. . (2) Assume that service departments do not serve themselves. Alocate the service costs using the step-down method. F201,929G233 0 (3) Assume that service departments do not serve themselves Allocate the service costs using the reciprocal method (4) Assume that personnel department serves itself Answer it by using reciprocal method. The Allocation of Service Department Costs 01. Parat College allocates support department costs to its individual schools using the step-down method. Information for May 2009 is as follows teen l0s 100 Support Departments Maintemance Power $54,000 $99,000 Costs incurred Service percentages provided to 10% Maintenance 20% Power 20% 30 % 29,n0o School of Education 70% 50% School of Technology 100% 100% What is the amount of May 2009 support department costs allocated to the School of as00 d. $49.125 Education? b. $42.120 a $40,500 -18- The Allocation of Service Department Costs: Budgeted Costs and Dual Rate Method 09. Swift Company has a equipment in operating departments A and B. The Maintenance Department budgeted variable maintenance costs of $0.20 per machine hour for June. Actual variable Maintenance Department that does maintenance work on all maintenance costs for the month totaled $15,000. Budgeted and actual machine hours in the operating departments for the month were: Dept. B Total Dept. A 40,000 18,000 22,000 Budgeted machine hours 50,000 20,000 30,000 Actual machine hours worked How much variable maintenance cost for the month should be charged to Department A at the end of the month for performance evaluation purposes? d. $9,000 c. $ 8,250 b. $15,000 a.$ 6,000 10. Fox Company has the following data concerning the machine-hours in its operating departments: Dept. A Dept. B Dept. C Machine hours, long-run average 10,000 30,000 20,000 Machine hours, actual 9,000 24,000 18,000 Fixed costs of the maintenance department are budgeted at $30,000 per year. The fixed maintenance costs are incurred in order to service long-run average demand. The actual fixed maintenance cost was actually $32,000. How much fixed maintenanc cost should be charged Department B at the end of the year for performance evaluation to purposes? a. $12,000 b. $14,400 c. $15.000 d. $18,000 11. Bunyard Corporation has two operating divisions-an Atlantic Division and a Pacific Division. The company's Logistics Department services both divisions. The variable costs budgeted at $45 per shipment. The Logistics budgeted at $212,400 for the year. The fixed costs of the of the Logistics Department are Department's fixed costs are peak-period demand. Logistics Department are determined based on Percentage of Peak-Period Capacity Required Budgeted Shipments 35% 1,100 Atlantic Division 65% 2,500 Pacific Division At the end of the year, actual Logistics Department variable costs totaled $202,400 and fixed costs totaled $223,900. The Atlantic Division had a total of 2,100 shipments and the Pacific Division had a total of 2,300 shipments for the year. How much Logistics Department cost should be charged to the Pacific Division at the end of the year for performance evaluation purposes? a. $241,560 b. $222,839 C. $251,335 d. $214,527 Srale rat mu Items 2 and 3 are based on the following information: The power and maintenance departments of a manufacturing company are service departments that provide support to each other as well as to the organization's two production departments, plating and assembly. The manufacturing company employs separate departmental manufacturing overhead rates for the two production departments requiring the allocation of the service department costs to the two manufacturing departments. Square footage of area served is used to allocate the maintenance department costs while percentage of power usage is used to allocate the power department costs. Department costs and operation data are as follows: Service Department Production Department Assembly Plating Costs: Maintenance Power 180,000 60,000 Labor 540,000 $1,440.000 Overhead $ 720,000 $1,500,000 Total costs Operating Data 6,000 24,000 1,500 6,000 Square feet Percent of Usage: 35% 60% 5% Long-run capacity Expected actual use 26% 70% 4% 02. The allocation method which can provide the theoretically best allocation of service department costs would be a. A dual-rate allocation method allocating variable cost on expected actual usage and fixed costs on long-run capacity usage. b. The step-down allocation method. c. The direct allocation method. d. The reciprocal (or linear algebra) allocation method. 03. Assume that the firm employs the step-down method to allocate service department costs. If the costs of maintenance department is first allocated, how much maintenance plating department? to department cost would be directly charged d. $ 90.000 c. $115,200 b. $120,000 a. $144,000 D20 000x 6,00 6,0004 00421.00 Charging Costs by Behavior