Service department cost allocation

Chan Kwan LLP is a law firm that specializes in working with business clients. Lily Li, the firms controller assesses the manager of each of its departments on their ability to control costs. As such, he wants to properly allocate the costs of their two major service departments, Human resources, and Office services to their two production departments, Paralegal and Corporate.

It should be noted that Human resources and Office services also provide services to each other. Human resources costs are allocated based on the number of employees in each department and Office services costs are allocated based on the hours of service provided to each department. Department costs, along with the hours of service provided and the number of employees that worked in each department during April are provided below.

April Data	Human resources	Office services	Paralegal department	Corporate department
Budgeted costs	$376,200	$629,500	$1,335,000	$1,170,000
Actual costs	$381,600	$609,650	$1,152,000	$1,233,600
Actual hours of service provided	3,060	6,000	8,500	5,440
Actual number of employees	10	12	40	28

Required:

Allocate the costs of the service departments to the production departments. The resulting schedules will include the total cost of operating the Paralegal department and the Corporate department for April using the appropriate figures.

Apply the costs using the reciprocal method