Question
Paul Corp. is a retailing firm which has two service departments, Human resources and Information systems, and two operating departments, Corporate sales and Consumer sales.
Paul Corp. is a retailing firm which has two service departments, Human resources and Information systems, and two operating departments, Corporate sales and Consumer sales. The Human resources Department costs of $100,000 are allocated on the basis of number of employees. The Information systems Department costs of $150,000 are allocated based on the processing time. The costs of operating departments, Corporate sales and Consumer sales, are $528,000 and $222,000, respectively. Data on overhead costs, and information about the number of employees and processing time given as percentages (e.g., 13% is shown as 0.13), are as follows:
Service Departments | operating Departments | |||
Human resources Department | Information systems Department | Corporate sales Department | Consumer sales Department | |
Overhead costs: | $100,000 | $150,000 | $528,000 | $222,000 |
number of employees (percent) | 0.06 | 0.20 | 0.28 | 0.46 |
processing time (percent) | 0.07 | 0.00 | 0.41 | 0.52 |
Overhead rates are established for each of the operating departments. The Corporate sales Department allocates overhead based upon corporate sales calls and the Consumer sales Department allocates overhead based upon cases of books sold. The planned levels are 16,000 corporate sales calls and 22,200 cases of books sold. Allocate costs to the operating departments using the step method and allocating Information systems Department costs first, then find the overhead rates for the Corporate sales and Consumer sales departments.
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