Question
Quinlan Trust Corporation has two service departments: actuary and economic analysis. Quinlan also has three operating departments: annuity, fund management, and employee benefit services. The
Quinlan Trust Corporation has two service departments: actuary and economic analysis. Quinlan also has three operating departments: annuity, fund management, and employee benefit services. The annual costs of operating the service departments are $480,000 for actuary and $800,000 for economic analysis. Quinlan uses the direct method to allocate service center costs to operating departments. Other relevant data follow:
Operating Costs* | Revenue | |||||
Annuity | $ | 500,000 | $ | 840,000 | ||
Fund management | 900,000 | 1,260,000 | ||||
Employee benefit services | 600,000 | 1,100,000 | ||||
*The operating costs are measured before allocating service center costs.
Required
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Use operating costs as the cost driver for allocating service center costs to operating departments.
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Use revenue as the cost driver for allocating service center costs to operating departments.
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