app04b.doc

Appendix 4B, Service Department Allocations

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ID OriginCMA/CPA origin

1 T/F M x x New,3/31/98,F E.N.2 T/F M x New,3/6/95,L E.N.3 T/F M x New,3/6/95,G E.N.4 T/F M x New,3/6/95,J E.N.

5Conceptual

M/C H x x 8/e: ATB16-26David Keyes

6Conceptual

M/C M x x 9eLD:CH16Q1Larry Deppe

7 M/C M x 3/e: 16-1 Authors

8 M/C E x10/15/2004 Single MC A3 E.N.

9 M/C E x10/15/2004 Single MC B3 E.N.

10 M/C E x10/15/2004 Single MC C3 E.N.

11 M/C E x10/15/2004 Single MC D3 E.N.

12 M/C E x10/15/2004 Single MC E3 E.N.

13 M/C E x10/16/2004 Single MC F3 E.N.

14 M/C E x 10/16/2004 Single E.N.

4B-1


MC G2

15 M/C E x10/16/2004 Single MC H3 E.N.

16 M/C E x10/16/2004 Single MC I3 E.N.

4B-1

17-18 Multipart M/C M x x 5/e: 16-59 to 60 Authors

4B-2

19-20 Multipart M/C M x x 8/e: ATB16-30 to 31

David Keyes

4B-3

21-23 Multipart M/C E-M x x 8/e: ATB16-36 to 38

David Keyes

4B-4

24-25 Multipart M/C E x

10/15/2004 Multi MC A3 E.N.

4B-5


10/15/2004 Multi MC B3 E.N.

4B-6


10/15/2004 Multi MC C3 E.N.

4B-7


10/15/2004 Multi MC D3 E.N.

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32-35 Multipart M/C M x 5/e: 16-54 to 58 Authors

4B-9


10/16/2004 Multi MC E3 E.N.

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10/16/2004 Multi MC F3 E.N.

4B-11


10/16/2004 Multi MC G3 E.N.

4B-12


10/16/2004 Multi MC H3 E.N.

44 Problem E x10/15/2004 Problem A3 E.N.

45 Problem E x10/15/2004 Problem B3 E.N.

46 Problem E x10/15/2004 Problem C3 E.N.

47 Problem E x10/15/2004 Problem D3 E.N.

48 Problem E x10/16/2004 Problem E3 E.N.

4B-2


49 Problem E x10/16/2004 Problem F3 E.N.

50 Problem E x10/16/2004 Problem G3 E.N.

51 Problem E x10/16/2004 Problem H3 E.N.

4B-3


True / False Questions

1. In both the direct and step-down methods of allocating service department costs, any amount of the allocation base that is attributable to the service department whose cost is being allocated is ignored. True False

2. The direct method has the disadvantage that it may leave some service department costs unallocated. True False

3. If personnel department expenses are allocated on the basis of the number of employees in various departments, then the number of employees in the personnel department itself must be included in the allocation base when the step-down method is used. True False

4. The step-down method requires that an order of allocation is established before service department costs can be allocated to operating departments. True False

Multiple Choice Questions

5. When would the direct method and the step-down method of service department cost allocation result in identical allocations being made to the operating departments? A. when there is only one service departmentB. when all of the costs in the service departments are fixed costsC. when there is an equal amount of service departments and operating departmentsD. both A and B above

4B-4


6. Reciprocal service department costs are: A. allocated to producing departments under the direct method but not allocated to producing departments at all under the step-down method.B. allocated to producing departments under the step-down method but not allocated to producing departments at all under the direct method.C. not allocated to producing departments under either the direct or the step-down methods.D. allocated to producing departments under both the direct and step-down methods.

7. Parker Company has two service departments, cafeteria and engineering, and two operating departments. The number of employees in each department is given below:

The costs of the Cafeteria are allocated to other departments on the basis of the number of employees in the departments. If these costs are budgeted at $69,375, the amount of cost allocated to Engineering under the direct method would be: A. $0B. $3,700C. $3,750D. $17,344

4B-5


8. Nolin Corporation uses the direct method to allocate service department costs to operating departments. The company has two service departments, Administrative and Facilities, and two operating departments, Assembly and Wholesaling.

Administrative costs are allocated on the basis of employee hours and Facilities costs are allocated on the basis of space occupied. The total Wholesaling Department cost after the allocations of service department costs is closest to: A. $418,700B. $406,160C. $416,273D. $418,390

9. Hypes Clinic uses the direct method to allocate service department costs to operating departments. The clinic has two service departments, Personnel and Support, and two operating departments, Prenatal and Pediatrics.

Personnel Department costs are allocated on the basis of employee hours and Support Department costs are allocated on the basis of space occupied in square feet. The total Pediatrics Department cost after the allocations of service department costs is closest to: A. $1,036,914B. $1,036,040C. $1,024,310D. $1,033,809

4B-6


10. Hopp Corporation uses the direct method to allocate service department costs to operating departments. The company has two service departments, Data Processing and Personnel, and two operating departments, Assembly and Finishing.

Data Processing Department costs are allocated on the basis of computer workstations and Personnel Department costs are allocated on the basis of employees. The total amount of Data Processing Department cost allocated to the two operating departments is closest to: A. $29,871B. $82,720C. $34,689D. $21,946

11. The direct method is used by Hoeffner Publishing, Inc., to allocate service department costs to operating departments. The company has two service departments, Information Technology and Personnel, and two operating departments, Prepress and Printing.

Information Technology Department costs are allocated on the basis of computer workstations and Personnel Department costs are allocated on the basis of employees. The total Prepress Department cost after service department allocations is closest to: A. $345,276B. $342,428C. $334,685D. $339,455

4B-7


12. Kormos Surgical Hospital uses the direct method to allocate service department costs to operating departments. The hospital has two service departments, Telecommunications and Administration, and two operating departments, Surgery and Recovery.

Telecommunications Department costs are allocated on the basis of the number of telecommunications ports in departments and Administration Department costs are allocated on the basis of employees. The total Surgery Department cost after service department allocations is closest to: A. $485,219B. $481,451C. $476,168D. $487,892

4B-8


13. Wisneski Corporation uses the step-down method to allocate service department costs to operating departments. The company has two service departments, General Management and Physical Plant, and two operating departments, Sales and After-Sales. Data concerning those departments follow:

General Management Department costs are allocated first on the basis of employee time and Physical Plant Department costs are allocated second on the basis of space occupied. The total After-Sales Department cost after allocations is closest to: A. $251,200B. $261,249C. $263,460D. $262,820

14. Lisby, Inc., allocates service department costs to operating departments using the step-down method. The company has two service departments, Administration and Physical Plant, and two operating departments, Assembly and Testing. Data concerning those departments follow:

Administration Department costs are allocated first on the basis of employee time and Physical Plant Department costs are allocated second on the basis of space occupied. The total Testing Department cost after allocations is closest to: A. $226,258B. $225,800C. $211,940D. $224,077

4B-9


15. Ranft Clinic uses the step-down method to allocate service department costs to operating departments. The clinic has two service departments, Personnel and Information Technology (IT), and two operating departments, Family Medicine and Pediatric. Data concerning those departments follow:

Personnel costs are allocated first on the basis of employees and IT costs are allocated second on the basis of PCs. The total Pediatric Department cost after allocations is closest to: A. $456,993B. $456,904C. $409,220D. $447,702

16. Wiedenheft Children's Clinic allocates service department costs to operating departments using the step-down method. The clinic has two service departments, Administration and Information Technology (IT), and two operating departments, Prenatal and Pediatric. Data concerning those departments follow:

Administration costs are allocated first on the basis of employees and IT costs are allocated second on the basis of PCs. The total Pediatric Department cost after allocations is closest to: A. $390,036B. $380,828C. $389,712D. $365,886

4B-10


The James Company has four departments with data as follows:

17. Maintenance Department costs are allocated on the basis of labor hours. The amount of cost allocated to Milling from Maintenance under the direct method would be: A. $5,600B. $6,720C. $5,250D. $5,700

18. Cafeteria costs are allocated on the basis of number of employees. If the step-down method is used with costs of the Cafeteria allocated first, the amount of cost allocated from the Cafeteria to Maintenance would be: A. $0B. $625C. $698D. $750

4B-11


Letter Corporation has two service departments (A and B) that provide service to each other and to two operating departments (X and Y). A provides 20% of its service to B, 30% of its service to X, and 50% of its service to Y. B provides 10% of its service to A, 45% of its service to X, and 45% of its service to Y. Operating costs in A are $300,000. Operating costs in B are $180,000. Cost allocations are made starting with department A. No distinction is made between variable and fixed costs.

19. If service department costs are allocated using the direct method, what is the total amount of service cost that will be allocated to X? A. $172,000B. $180,000C. $198,000D. $202,500

20. If service department costs are allocated using the step-down method, what is the total amount of service cost that will be allocated to Y? A. $231,000B. $240,000C. $258,000D. $270,000

4B-12


Zoopsia Hospital has two service departments and three operating departments. Selected information on the five departments for last year is as follows:

Zoopsia allocates Power Generation cost first on the basis of kilowatt hours. Zoopsia then allocates Laundry cost on the basis of the number of employees. Operating costs in Power Generation for last year were $250,000. Operating costs in Laundry for last year were $60,000. No distinction is made between variable and fixed costs.

21. If service department costs are allocated using the direct method, what is the total amount of service cost that would be allocated to the Emergency Room? A. $147,100B. $161,000C. $182,750D. $192,250

22. If service department costs are allocated using the step-down method, what is the total amount of service cost that will be allocated to Maternity? A. $66,425B. $73,000C. $84,500D. $88,000

4B-13


23. If service department costs are allocated using the step-down method, how much service cost will remain in the Power Generation department after allocation? A. $0B. $6,750C. $12,375D. $12,500

Franca Corporation has two service departments, Administrative and Facilities, and two operating departments, Assembly and Customer Feedbacks.

The company uses the direct method to allocate service department costs to operating departments. Administrative costs are allocated on the basis of employee hours and Facilities costs are allocated on the basis of space occupied.

24. The total amount of Administrative Department cost allocated to the Assembly Department is closest to: A. $37,806B. $28,217C. $28,830D. $26,524

25. The total Customer solutions Department cost after the allocations of service department costs is closest to: A. $696,940B. $682,990C. $694,753D. $697,172

4B-14


Silguero Clinic has two service departments, Administrative and Support, and two operating departments, Adult Medicine and Pediatrics.

The clinic uses the direct method to allocate service department costs to operating departments. Administrative Department costs are allocated on the basis of employee hours and Support Department costs are allocated on the basis of space occupied in square feet.

26. The total amount of Administrative Department cost allocated to the Adult Medicine Department is closest to: A. $18,482B. $14,333C. $12,968D. $14,720

27. The total Pediatrics Department cost after the allocations of service department costs is closest to: A. $521,999B. $524,830C. $515,870D. $525,825

4B-15


Weisenborn Corporation uses the direct method to allocate service department costs to operating departments. The company has two service departments, Information Technology and Personnel, and two operating departments, Fabrication and Customization.

Information Technology Department costs are allocated on the basis of computer workstations and Personnel Department costs are allocated on the basis of employees.

28. The total amount of Information Technology Department cost allocated to the two operating departments is closest to: A. $28,688B. $66,435C. $18,427D. $25,500

29. The total Fabrication Department cost after service department allocations is closest to: A. $235,821B. $227,905C. $234,336D. $231,641

4B-16


Holmon Surgical Hospital uses the direct method to allocate service department costs to operating departments. The hospital has two service departments, Information Technology and Administration, and two operating departments, Surgery and Recovery.

Information Technology Department costs are allocated on the basis of computer workstations and Administration Department costs are allocated on the basis of employees.


31. The total Surgery Department cost after service department allocations is closest to: A. $463,368B. $457,933C. $470,058D. $467,841

4B-17


The Mohawk-Hudson Company is an electric utility which has two service departments, Accounting and Maintenance. It has two operating departments, Generation and Transmission. The company does not distinguish between fixed and variable service department costs. Maintenance Department costs are allocated on the basis of maintenance hours. Accounting Department costs are allocated to operating departments on the basis of accounting hours of service provided. Budgeted costs and other data for the coming year are as follows:

The step-down method is used to allocate service department costs, with the accounting department being allocated first.

32. The amount of accounting department costs allocated to the Maintenance Department would be: A. $0B. $20,000C. $19,048D. $18,000

33. The amount of Accounting Department costs allocated to the Generation Department would be: A. $42,857B. $57,143C. $38,000D. $45,000

34. The amount of Maintenance Department cost allocated to the Accounting Department would be: A. $0B. $69,315C. $75,000D. $88,000

4B-18


35. The amount of Maintenance Department cost allocated to the Generation Department would be: A. $132,000B. $123,750C. $150,685D. $140,000

Karnofski Corporation uses the step-down method to allocate service department costs to operating departments. The company has two service departments, Service Department A and Service Department B, and two operating departments, Operating Department X and Operating Department Y. Data concerning those departments follow:

Service Department A costs are allocated first on the basis of allocation base A and Service Department B costs are allocated second on the basis of allocation base B.

36. In the first step of the allocation, the amount of Service Department A cost allocated to the Operating Department X is closest to: A. $13,599B. $18,426C. $16,123D. $17,430

37. The total Operating Department Y cost after allocations is closest to: A. $398,810B. $397,211C. $399,285D. $387,190

4B-19


Quezaire Corporation, a manufacturer, uses the step-down method to allocate service department costs to operating departments. The company has two service departments, Administration and Facilities, and two operating departments, Assembly and Finishing. Data concerning those departments follow:

Administration Department costs are allocated first on the basis of labor hours and Facilities Department costs are allocated second on the basis of space occupied.

38. In the first step of the allocation, the amount of Administration Department cost allocated to the Assembly Department is closest to: A. $32,640B. $14,569C. $34,124D. $29,440

39. The total Finishing Department cost after allocations is closest to: A. $528,859B. $525,110C. $528,790D. $519,190

4B-20


Clopton Clinic uses the step-down method to allocate service department costs to operating departments. The clinic has two service departments, Personnel and Information Technology (IT), and two operating departments, Family Medicine and Geriatric Medicine. Data concerning those departments follow:

Personnel costs are allocated first on the basis of employees and IT costs are allocated second on the basis of PCs.

40. In the first step of the allocation, the amount of Personnel Department cost allocated to the Family Medicine Department is closest to: A. $20,285B. $17,929C. $18,560D. $39,774

41. The total Geriatric Medicine Department cost after allocations is closest to: A. $113,020B. $134,101C. $139,700D. $139,601

4B-21


Finkler Legal Services, LLC, uses the step-down method to allocate service department costs to operating departments. The firm has two service departments, Personnel and Information Technology (IT), and two operating departments, Family Law and Corporate Law. Data concerning those departments follow:


42. In the first step of the allocation, the amount of Personnel Department cost allocated to the Family Law Department is closest to: A. $30,752B. $32,837C. $45,636D. $29,177

43. The total Corporate Law Department cost after allocations is closest to: A. $389,318B. $380,375C. $346,910D. $388,872

4B-22


Essay Questions

44. Maclennan Corporation uses the direct method to allocate service department costs to operating departments. The company has two service departments, Administrative and Facilities, and two operating departments, Assembly and Finishing.

Administrative Department costs are allocated on the basis of employee hours and Facilities Department costs are allocated on the basis of space occupied.

Required:

Allocate the service department costs to the operating departments using the direct method.

4B-23


45. Hodgin Corporation uses the direct method to allocate its two service department costs to its two operating departments. Data concerning those departments follow:

Service Department A costs are allocated on the basis of allocation base A and Service Department B costs are allocated on the basis of allocation base B.

Required:


4B-24


46. The direct method is used by Rastorfer Clinic to allocate its service department costs to its operating departments. Data concerning those departments follow:

Information Technology costs are allocated on the basis of computers and Personnel costs are allocated on the basis of employees.

Required:


4B-25


47. Goffinet Consultancy uses the direct method to allocate its service department costs to its operating departments. The company has two service departments, Information Technology and Administration, and two operating departments, Corporate Practice and Government Practice. Data concerning those departments follow:

Information Technology Department costs are allocated on the basis of computers and Administration Department costs are allocated on the basis of employees.

Required:


4B-26


48. Costillo Corporation has two service departments, Service Department A and Service Department B, and two operating departments, Operating Department X and Operating Department Y.

The company uses the step-down method to allocate service department costs to operating departments. Service Department A costs are allocated first on the basis of allocation base A and Service Department B costs are allocated second on the basis of allocation base B.

Required:

Allocate the service department costs to the operating departments using the step-down method.

4B-27


49. Taketa Corporation uses the step-down method to allocate service department costs to operating departments. The company has two service departments, Administration and Facilities, and two operating departments, Assembly and Finishing.

Administration Department costs are allocated first on the basis of employee time and Facilities Department costs are allocated second on the basis of space occupied.

Required:


4B-28


50. Aderholt Emergency Care Hospital uses the step-down method to allocate service department costs to operating departments. The hospital has two service departments, Administration and Information Technology (IT), and two operating departments, Emergency Room and Intensive Care.

Administration Department costs are allocated first on the basis of employees and IT Department costs are allocated second on the basis of computers.

Required:


4B-29


51. Ziebol Natal Clinic uses the step-down method to allocate service department costs to operating departments. The clinic has two service departments, Administration and Information Technology (IT), and two operating departments, Prenatal Care and Postnatal Care.


Required:


4B-30

Appendix 4B, Service Department Allocations Key

True / False Questions

1. In both the direct and step-down methods of allocating service department costs, any amount of the allocation base that is attributable to the service department whose cost is being allocated is ignored. TRUE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementLearning Objective: 10Learning Objective: 11Level: Medium

2. The direct method has the disadvantage that it may leave some service department costs unallocated. FALSE

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementLearning Objective: 10Level: Medium

3. If personnel department expenses are allocated on the basis of the number of employees in various departments, then the number of employees in the personnel department itself must be included in the allocation base when the step-down method is used. FALSE


4B-31


4. The step-down method requires that an order of allocation is established before service department costs can be allocated to operating departments. TRUE


Multiple Choice Questions

5. When would the direct method and the step-down method of service department cost allocation result in identical allocations being made to the operating departments? A. when there is only one service departmentB. when all of the costs in the service departments are fixed costsC. when there is an equal amount of service departments and operating departmentsD. both A and B above

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementLearning Objective: 10Learning Objective: 11Level: Hard

6. Reciprocal service department costs are: A. allocated to producing departments under the direct method but not allocated to producing departments at all under the step-down method.B. allocated to producing departments under the step-down method but not allocated to producing departments at all under the direct method.C. not allocated to producing departments under either the direct or the step-down methods.D. allocated to producing departments under both the direct and step-down methods.

AACSB: Reflective ThinkingAICPA BB: Critical ThinkingAICPA FN: MeasurementLearning Objective: 10Learning Objective: 11Level: Medium

4B-32


7. Parker Company has two service departments, cafeteria and engineering, and two operating departments. The number of employees in each department is given below:

The costs of the Cafeteria are allocated to other departments on the basis of the number of employees in the departments. If these costs are budgeted at $69,375, the amount of cost allocated to Engineering under the direct method would be: A. $0B. $3,700C. $3,750D. $17,344

The costs of one service department would not be allocated to another service department using the direct method.

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementLearning Objective: 10Level: Medium

4B-33


8. Nolin Corporation uses the direct method to allocate service department costs to operating departments. The company has two service departments, Administrative and Facilities, and two operating departments, Assembly and Wholesaling.

Administrative costs are allocated on the basis of employee hours and Facilities costs are allocated on the basis of space occupied. The total Wholesaling Department cost after the allocations of service department costs is closest to: A. $418,700B. $406,160C. $416,273D. $418,390

Allocation rate for Administrative costs= Cost to be allocated Allocation base= $26,400 (21,000 + 19,000) = $0.66Allocation rate for Facilities costs= Cost to be allocated Allocation base= $67,550 (31,000 + 4,000) = $1.93

AACSB: AnalyticAICPA BB: Critical ThinkingAICPA FN: MeasurementLearning Objective: 10Level: Easy

4B-34


9. Hypes Clinic uses the direct method to allocate service department costs to operating departments. The clinic has two service departments, Personnel and Support, and two operating departments, Prenatal and Pediatrics.

Personnel Department costs are allocated on the basis of employee hours and Support Department costs are allocated on the basis of space occupied in square feet. The total Pediatrics Department cost after the allocations of service department costs is closest to: A. $1,036,914B. $1,036,040C. $1,024,310D. $1,033,809

Allocation rate for Personnel costs= Cost to be allocated Allocation base= $27,600 (23,000 + 17,000) = $0.69Allocation rate for Support costs= Cost to be allocated Allocation base= $77,550 (38,000 + 9,000) = $1.65


4B-35


10. Hopp Corporation uses the direct method to allocate service department costs to operating departments. The company has two service departments, Data Processing and Personnel, and two operating departments, Assembly and Finishing.

Data Processing Department costs are allocated on the basis of computer workstations and Personnel Department costs are allocated on the basis of employees. The total amount of Data Processing Department cost allocated to the two operating departments is closest to: A. $29,871B. $82,720C. $34,689D. $21,946

Allocation rate for Data Processing costs= Cost to be allocated Allocation base= $34,689 (55 + 38) = $373Allocation rate for Personnel costs= Cost to be allocated Allocation base= $21,755 (59 + 36) = $229


4B-36


11. The direct method is used by Hoeffner Publishing, Inc., to allocate service department costs to operating departments. The company has two service departments, Information Technology and Personnel, and two operating departments, Prepress and Printing.

Information Technology Department costs are allocated on the basis of computer workstations and Personnel Department costs are allocated on the basis of employees. The total Prepress Department cost after service department allocations is closest to: A. $345,276B. $342,428C. $334,685D. $339,455

Allocation rate for Information Technology costs= Cost to be allocated Allocation base= $36,828 (49 + 44) = $396Allocation rate for Personnel costs= Cost to be allocated Allocation base= $22,989 (56 + 41) = $237


4B-37


12. Kormos Surgical Hospital uses the direct method to allocate service department costs to operating departments. The hospital has two service departments, Telecommunications and Administration, and two operating departments, Surgery and Recovery.

Telecommunications Department costs are allocated on the basis of the number of telecommunications ports in departments and Administration Department costs are allocated on the basis of employees. The total Surgery Department cost after service department allocations is closest to: A. $485,219B. $481,451C. $476,168D. $487,892

Allocation rate for Telecommunications costs= Cost to be allocated Allocation base= $34,485 (54 + 41) = $363Allocation rate for Administration costs= Cost to be allocated Allocation base= $27,608 (100 + 36) = $203


4B-38


13. Wisneski Corporation uses the step-down method to allocate service department costs to operating departments. The company has two service departments, General Management and Physical Plant, and two operating departments, Sales and After-Sales. Data concerning those departments follow:

General Management Department costs are allocated first on the basis of employee time and Physical Plant Department costs are allocated second on the basis of space occupied. The total After-Sales Department cost after allocations is closest to: A. $251,200B. $261,249C. $263,460D. $262,820

Allocation rate for General Management Department costs= Cost to be allocated Allocation base= $29,880 (2,000 + 20,000 + 14,000) = $0.83Allocation rate for Physical Plant Department costs= Cost to be allocated Allocation base= ($57,240 + $1,660) (37,000 + 1,000) = $1.55


4B-39


14. Lisby, Inc., allocates service department costs to operating departments using the step-down method. The company has two service departments, Administration and Physical Plant, and two operating departments, Assembly and Testing. Data concerning those departments follow:

Administration Department costs are allocated first on the basis of employee time and Physical Plant Department costs are allocated second on the basis of space occupied. The total Testing Department cost after allocations is closest to: A. $226,258B. $225,800C. $211,940D. $224,077

Allocation rate for Administration Department costs= Cost to be allocated Allocation base= $49,500 (2,000 + 34,000 + 14,000) = $0.99Allocation rate for Physical Plant Department costs= Cost to be allocated Allocation base= ($32,340 + $1,980) (31,000 + 2,000) = $1.04


4B-40


15. Ranft Clinic uses the step-down method to allocate service department costs to operating departments. The clinic has two service departments, Personnel and Information Technology (IT), and two operating departments, Family Medicine and Pediatric. Data concerning those departments follow:

Personnel costs are allocated first on the basis of employees and IT costs are allocated second on the basis of PCs. The total Pediatric Department cost after allocations is closest to: A. $456,993B. $456,904C. $409,220D. $447,702

Allocation rate for Personnel Department costs= Cost to be allocated Allocation base= $86,460 (21 + 127 + 182) = $262Allocation rate for IT Department costs= Cost to be allocated Allocation base= ($54,238 + $5,502) (88 + 118) = $290


4B-41


16. Wiedenheft Children's Clinic allocates service department costs to operating departments using the step-down method. The clinic has two service departments, Administration and Information Technology (IT), and two operating departments, Prenatal and Pediatric. Data concerning those departments follow:

Administration costs are allocated first on the basis of employees and IT costs are allocated second on the basis of PCs. The total Pediatric Department cost after allocations is closest to: A. $390,036B. $380,828C. $389,712D. $365,886

Allocation rate for Administration Department costs= Cost to be allocated Allocation base= $45,150 (22 + 118 + 161) = $150Allocation rate for IT Department costs= Cost to be allocated Allocation base= ($44,424 + $3,300) (63 + 131) = $246


4B-42


The James Company has four departments with data as follows:

17. Maintenance Department costs are allocated on the basis of labor hours. The amount of cost allocated to Milling from Maintenance under the direct method would be: A. $5,600B. $6,720C. $5,250D. $5,700

Allocation rate for Cafeteria costs= Cost to be allocated Allocation base= $12,000 (84 + 66) = $80Allocation rate for Maintenance costs= Cost to be allocated Allocation base= $10,000 (5,250 + 4,750) = $1


4B-43


18. Cafeteria costs are allocated on the basis of number of employees. If the step-down method is used with costs of the Cafeteria allocated first, the amount of cost allocated from the Cafeteria to Maintenance would be: A. $0B. $625C. $698D. $750

Allocation rate for Cafeteria Department costs= Cost to be allocated Allocation base= $12,000 (10 + 84 + 66) = $75Allocation rate for Maintenance Department costs= Cost to be allocated Allocation base= ($10,000 + $750) (5,250 + 4,750) = $1.075


4B-44


Letter Corporation has two service departments (A and B) that provide service to each other and to two operating departments (X and Y). A provides 20% of its service to B, 30% of its service to X, and 50% of its service to Y. B provides 10% of its service to A, 45% of its service to X, and 45% of its service to Y. Operating costs in A are $300,000. Operating costs in B are $180,000. Cost allocations are made starting with department A. No distinction is made between variable and fixed costs.

19. If service department costs are allocated using the direct method, what is the total amount of service cost that will be allocated to X? A. $172,000B. $180,000C. $198,000D. $202,500


4B-45


20. If service department costs are allocated using the step-down method, what is the total amount of service cost that will be allocated to Y? A. $231,000B. $240,000C. $258,000D. $270,000


Zoopsia Hospital has two service departments and three operating departments. Selected information on the five departments for last year is as follows:

Zoopsia allocates Power Generation cost first on the basis of kilowatt hours. Zoopsia then allocates Laundry cost on the basis of the number of employees. Operating costs in Power Generation for last year were $250,000. Operating costs in Laundry for last year were $60,000. No distinction is made between variable and fixed costs.

4B-46


21. If service department costs are allocated using the direct method, what is the total amount of service cost that would be allocated to the Emergency Room? A. $147,100B. $161,000C. $182,750D. $192,250

Allocation rate for Power Generation costs= Cost to be allocated Allocation base= $250,000 (475,000 + 209,000 + 76,000) = $0.33Allocation rate for Laundry costs= Cost to be allocated Allocation base= $60,000 (378 + 189 + 63) = $95.24


4B-47


22. If service department costs are allocated using the step-down method, what is the total amount of service cost that will be allocated to Maternity? A. $66,425B. $73,000C. $84,500D. $88,000

Allocation rate for Power Generation Department costs= Cost to be allocated Allocation base= $250,000 (190,000 + 475,000 + 209,000 + 76,000) = $0.26Allocation rate for Laundry Department costs= Cost to be allocated Allocation base= ($60,000 + $50,000) (378 + 189 + 63) = $174.60Service cost allocated to Maternity = $55,000 + $33,000 = $88,000


4B-48


23. If service department costs are allocated using the step-down method, how much service cost will remain in the Power Generation department after allocation? A. $0B. $6,750C. $12,375D. $12,500

Allocation rate for Power Generation Department costs= Cost to be allocated Allocation base= $250,000 (190,000 + 475,000 + 209,000 + 76,000) = $0.26Allocation rate for Laundry Department costs= Cost to be allocated Allocation base= ($60,000 + $50,000) (378 + 189 + 63) = $174.60


4B-49


Franca Corporation has two service departments, Administrative and Facilities, and two operating departments, Assembly and Customer Feedbacks.

The company uses the direct method to allocate service department costs to operating departments. Administrative costs are allocated on the basis of employee hours and Facilities costs are allocated on the basis of space occupied.

24. The total amount of Administrative Department cost allocated to the Assembly Department is closest to: A. $37,806B. $28,217C. $28,830D. $26,524



4B-50


25. The total Customer solutions Department cost after the allocations of service department costs is closest to: A. $696,940B. $682,990C. $694,753D. $697,172



4B-51


Silguero Clinic has two service departments, Administrative and Support, and two operating departments, Adult Medicine and Pediatrics.

The clinic uses the direct method to allocate service department costs to operating departments. Administrative Department costs are allocated on the basis of employee hours and Support Department costs are allocated on the basis of space occupied in square feet.

26. The total amount of Administrative Department cost allocated to the Adult Medicine Department is closest to: A. $18,482B. $14,333C. $12,968D. $14,720

Allocation rate for Administrative costs= Cost to be allocated Allocation base= $23,680 (23,000 + 14,000) = $0.64Allocation rate for Support costs= Cost to be allocated Allocation base= $41,000 (32,000 + 9,000) = $1.00


4B-52


27. The total Pediatrics Department cost after the allocations of service department costs is closest to: A. $521,999B. $524,830C. $515,870D. $525,825

Allocation rate for Administrative costs= Cost to be allocated Allocation base= $23,680 (23,000 + 14,000) = $0.64Allocation rate for Support costs= Cost to be allocated Allocation base= $41,000 (32,000 + 9,000) = $1.00


4B-53


Weisenborn Corporation uses the direct method to allocate service department costs to operating departments. The company has two service departments, Information Technology and Personnel, and two operating departments, Fabrication and Customization.

Information Technology Department costs are allocated on the basis of computer workstations and Personnel Department costs are allocated on the basis of employees.




4B-54


29. The total Fabrication Department cost after service department allocations is closest to: A. $235,821B. $227,905C. $234,336D. $231,641



4B-55


Holmon Surgical Hospital uses the direct method to allocate service department costs to operating departments. The hospital has two service departments, Information Technology and Administration, and two operating departments, Surgery and Recovery.

Information Technology Department costs are allocated on the basis of computer workstations and Administration Department costs are allocated on the basis of employees.


Allocation rate for Information Technology costs= Cost to be allocated Allocation base= $37,740 (53 + 49) = $370Allocation rate for Administration costs= Cost to be allocated Allocation base= $33,864 (92 + 44) = $249


4B-56


31. The total Surgery Department cost after service department allocations is closest to: A. $463,368B. $457,933C. $470,058D. $467,841

Allocation rate for Information Technology costs= Cost to be allocated Allocation base= $37,740 (53 + 49) = $370Allocation rate for Administration costs= Cost to be allocated Allocation base= $33,864 (92 + 44) = $249


4B-57


The Mohawk-Hudson Company is an electric utility which has two service departments, Accounting and Maintenance. It has two operating departments, Generation and Transmission. The company does not distinguish between fixed and variable service department costs. Maintenance Department costs are allocated on the basis of maintenance hours. Accounting Department costs are allocated to operating departments on the basis of accounting hours of service provided. Budgeted costs and other data for the coming year are as follows:

The step-down method is used to allocate service department costs, with the accounting department being allocated first.

32. The amount of accounting department costs allocated to the Maintenance Department would be: A. $0B. $20,000C. $19,048D. $18,000

Allocation rate for Accounting Department costs= Cost to be allocated Allocation base= $100,000 (2,000 + 4,500 + 3,500) = $10.00Allocation rate for Maintenance Department costs= Cost to be allocated Allocation base= ($200,000 + $20,000) (7,200 + 4,800) = $18.33


4B-58


33. The amount of Accounting Department costs allocated to the Generation Department would be: A. $42,857B. $57,143C. $38,000D. $45,000



4B-59


34. The amount of Maintenance Department cost allocated to the Accounting Department would be: A. $0B. $69,315C. $75,000D. $88,000



4B-60


35. The amount of Maintenance Department cost allocated to the Generation Department would be: A. $132,000B. $123,750C. $150,685D. $140,000



4B-61


Karnofski Corporation uses the step-down method to allocate service department costs to operating departments. The company has two service departments, Service Department A and Service Department B, and two operating departments, Operating Department X and Operating Department Y. Data concerning those departments follow:

Service Department A costs are allocated first on the basis of allocation base A and Service Department B costs are allocated second on the basis of allocation base B.

4B-62


36. In the first step of the allocation, the amount of Service Department A cost allocated to the Operating Department X is closest to: A. $13,599B. $18,426C. $16,123D. $17,430

Allocation rate for Service Department A costs= Cost to be allocated Allocation base= $30,710 (2,000 + 21,000 + 14,000) = $0.83Allocation rate for Service Department B costs= Cost to be allocated Allocation base= ($56,860 + $1,660) (39,000 + 5,000) = $1.33


4B-63


37. The total Operating Department Y cost after allocations is closest to: A. $398,810B. $397,211C. $399,285D. $387,190

Allocation rate for Service Department A costs= Cost to be allocated Allocation base= $30,710 (2,000 + 21,000 + 14,000) = $0.83Allocation rate for Service Department B costs= Cost to be allocated Allocation base= ($56,860 + $1,660) (39,000 + 5,000) = $1.33


4B-64


Quezaire Corporation, a manufacturer, uses the step-down method to allocate service department costs to operating departments. The company has two service departments, Administration and Facilities, and two operating departments, Assembly and Finishing. Data concerning those departments follow:

Administration Department costs are allocated first on the basis of labor hours and Facilities Department costs are allocated second on the basis of space occupied.

38. In the first step of the allocation, the amount of Administration Department cost allocated to the Assembly Department is closest to: A. $32,640B. $14,569C. $34,124D. $29,440

Allocation rate for Administration Department costs= Cost to be allocated Allocation base= $44,160 (2,000 + 34,000 + 10,000) = $0.96Allocation rate for Facilities Department costs= Cost to be allocated Allocation base= ($77,040 + $1,920) (38,000 + 9,000) = $1.68


4B-65


39. The total Finishing Department cost after allocations is closest to: A. $528,859B. $525,110C. $528,790D. $519,190



4B-66


Clopton Clinic uses the step-down method to allocate service department costs to operating departments. The clinic has two service departments, Personnel and Information Technology (IT), and two operating departments, Family Medicine and Geriatric Medicine. Data concerning those departments follow:


40. In the first step of the allocation, the amount of Personnel Department cost allocated to the Family Medicine Department is closest to: A. $20,285B. $17,929C. $18,560D. $39,774



4B-67


41. The total Geriatric Medicine Department cost after allocations is closest to: A. $113,020B. $134,101C. $139,700D. $139,601



4B-68


Finkler Legal Services, LLC, uses the step-down method to allocate service department costs to operating departments. The firm has two service departments, Personnel and Information Technology (IT), and two operating departments, Family Law and Corporate Law. Data concerning those departments follow:


4B-69


42. In the first step of the allocation, the amount of Personnel Department cost allocated to the Family Law Department is closest to: A. $30,752B. $32,837C. $45,636D. $29,177



4B-70


43. The total Corporate Law Department cost after allocations is closest to: A. $389,318B. $380,375C. $346,910D. $388,872



4B-71


Essay Questions

44. Maclennan Corporation uses the direct method to allocate service department costs to operating departments. The company has two service departments, Administrative and Facilities, and two operating departments, Assembly and Finishing.

Administrative Department costs are allocated on the basis of employee hours and Facilities Department costs are allocated on the basis of space occupied.

Required:


Allocation rate for administrative costs= Cost to be allocated Allocation base= $23,040 (25,000 + 11,000) = $0.64Allocation rate for facilities costs= Cost to be allocated Allocation base= $79,950 (37,000 + 4,000) = $1.95


4B-72


45. Hodgin Corporation uses the direct method to allocate its two service department costs to its two operating departments. Data concerning those departments follow:

Service Department A costs are allocated on the basis of allocation base A and Service Department B costs are allocated on the basis of allocation base B.

Required:


Allocation rate for Service Department A costs= Cost to be allocated Allocation base= $38,000 (28,000 + 12,000) = $0.95Allocation rate for Service Department B costs= Cost to be allocated Allocation base= $86,240 (37,000 + 7,000) = $1.96


4B-73


46. The direct method is used by Rastorfer Clinic to allocate its service department costs to its operating departments. Data concerning those departments follow:

Information Technology costs are allocated on the basis of computers and Personnel costs are allocated on the basis of employees.

Required:


Allocation rate for Information Technology costs= Cost to be allocated Allocation base= $35,114 / (56 + 41) = $362.00Allocation rate for Personnel costs= Cost to be allocated Allocation base= $42,483 / (107 + 40) = $289.00


4B-74


47. Goffinet Consultancy uses the direct method to allocate its service department costs to its operating departments. The company has two service departments, Information Technology and Administration, and two operating departments, Corporate Practice and Government Practice. Data concerning those departments follow:

Information Technology Department costs are allocated on the basis of computers and Administration Department costs are allocated on the basis of employees.

Required:


Allocation rate for Information Technology costs= Cost to be allocated Allocation base= $30,082 / (58 + 31) = $338.00Allocation rate for Administration costs= Cost to be allocated Allocation base= $39,760 / (112 + 30) = $280.00


4B-75


48. Costillo Corporation has two service departments, Service Department A and Service Department B, and two operating departments, Operating Department X and Operating Department Y.

The company uses the step-down method to allocate service department costs to operating departments. Service Department A costs are allocated first on the basis of allocation base A and Service Department B costs are allocated second on the basis of allocation base B.

Required:


Allocation rate for Service Department A costs= Cost to be allocated / Allocation base= $46,560 / (2,000 + 33,000 + 13,000) = $0.97Allocation rate for Service Department B costs= Cost to be allocated / Allocation base= ($56,960 + $1,940) / (31,000 + 7,000) = $1.55


4B-76


49. Taketa Corporation uses the step-down method to allocate service department costs to operating departments. The company has two service departments, Administration and Facilities, and two operating departments, Assembly and Finishing.

Administration Department costs are allocated first on the basis of employee time and Facilities Department costs are allocated second on the basis of space occupied.

Required:




4B-77


50. Aderholt Emergency Care Hospital uses the step-down method to allocate service department costs to operating departments. The hospital has two service departments, Administration and Information Technology (IT), and two operating departments, Emergency Room and Intensive Care.


Required:


Allocation rate for Administration Department costs= Cost to be allocated Allocation base= $16,906 (2 + 116 + 96) = $79Allocation rate for IT Department costs= Cost to be allocated Allocation base= ($31,237 + $158) (49 + 56) = $299


4B-78


51. Ziebol Natal Clinic uses the step-down method to allocate service department costs to operating departments. The clinic has two service departments, Administration and Information Technology (IT), and two operating departments, Prenatal Care and Postnatal Care.


Required:


Allocation rate for Administration Department costs= Cost to be allocated Allocation base= $11,468 (4 + 100 + 84) = $61Allocation rate for IT Department costs= Cost to be allocated Allocation base= ($20,546 + $244) (28 + 62) = $231


4B-79

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