Question

A housekeeping support department budgets its costs at SR 40,000 per month plus SR 12 / hour. For January the following were the estimated and actual hours provided by the housekeeping support department to 3 operating department.

	Estimated hours spent cleaning	Actual hours spent cleaning
Department A	1600	1500
Department B	1400	1600
Department C	2000	1800
Total	5000	4900

Required:

A- What is the support department's allocation rate if estimated activity is the allocation base?

B What is the support department's allocation rate if actual activity is the allocation base?

C List one advantages and one disadvantage for each types of allocation rate. (3 points)

________________________

Al Yamamah Steel Industries Co. uses the step method for allocating the costs of its service departments to operating departments. The company has two support departments (Human Resource and Information Technology) and two operating departments (Hot Rolled Hollow Steel and Cold Rolled Hollow Steel).

Al Yamamah Steel Industries Co. decided to allocate Human Resource department costs based on the number of employees in each department and Information Technology costs based on the number of machine hours in each department. (4 Points).

Required:

a- Give a numerical example for the four departments as a given information.

	Support Departments		Operating Departments		TOTAL
	Human Resource	Information Technology	Hot Rolled Hollow Steel	cold Rolled Hollow Steel
Total department cost
Number of employees
Number of machine hours

b- Then based on your given information, use the step-down method to allocate support department costs.

Allocate cost:

Human Resource
Information Technology
TOTAL