Appendix 4B, Service Department Allocations

LO8: FIFO assignment of costs (App 4A) LO9: FIFO Cost reconciliation (App 4A)

LO6: FIFO equivalent units (App 4A)

LO11: Step-down method (App 4B)

LO7: FIFO cost per EU (App 4A)

LO4: WAC assignment of costs

LO10: Direct method (App 4B)

LO5: WAC Cost reconciliation

Professional Exam Adapted

LO2: WAC equivalent units

LO3: WAC cost per EU

LO1: Cost flows

Difficulty

1 2 3 4 5 6 7 8 9 10 11 12 13 14

Question Type T/F T/F T/F T/F Conceptual M/C Conceptual M/C M/C M/C M/C M/C M/C M/C M/C M/C

M M M M H M M E E E E E E E

x x

x x x

ID New,3/31/98,F New,3/6/95,L New,3/6/95,G New,3/6/95,J 8/e: ATB16-26 9eLD:CH16Q1 3/e: 16-1 10/15/2004 Single MC A3 10/15/2004 Single MC B3 10/15/2004 Single MC C3 10/15/2004 Single MC D3 10/15/2004 Single MC E3 10/16/2004 Single MC F3 10/16/2004 Single

x x x x x x x x

x x

Origin E.N. E.N. E.N. E.N. David Keyes Larry Deppe Authors E.N. E.N. E.N. E.N. E.N. E.N. E.N.

CMA/CPA origin

x x

4B-1

Appendix 4B, Service Department Allocations

MC G2 10/16/2004 Single MC H3 10/16/2004 Single MC I3 5/e: 16-59 to 60 8/e: ATB16-30 to 31 8/e: ATB16-36 to 38 10/15/2004 Multi MC A3 10/15/2004 Multi MC B3 10/15/2004 Multi MC C3 10/15/2004 Multi MC D3 5/e: 16-54 to 58 10/16/2004 Multi MC E3 10/16/2004 Multi MC F3 10/16/2004 Multi MC G3 10/16/2004 Multi MC H3 10/15/2004 Problem A3 10/15/2004 Problem B3 10/15/2004 Problem C3 10/15/2004 Problem D3 10/16/2004 Problem E3

15 4B1 4B2 4B3 4B4 4B5 4B6 4B7 4B8 4B9 4B10 4B11 4B12 16 1718 1920 2123 2425 2627 2829 3031 3235 3637 3839 4041 4243 44 45 46 47 48

M/C M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Problem Problem Problem Problem Problem

E E M M E-M E E E E M E E E E E E E E E x x x x x x x x x x x

x x x x x

E.N. E.N. Authors David Keyes David Keyes E.N. E.N. E.N. E.N. Authors E.N. E.N. E.N. E.N. E.N. E.N. E.N. E.N. E.N.

x x x x x

4B-2

Appendix 4B, Service Department Allocations

49 50 51 Problem Problem Problem E E E x x x 10/16/2004 Problem F3 10/16/2004 Problem G3 10/16/2004 Problem H3 E.N. E.N. E.N.

4B-3

Appendix 4B, Service Department Allocations

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 department B. when all of the costs in the service departments are fixed costs C. when there is an equal amount of service departments and operating departments D. both A and B above

4B-4

Appendix 4B, Service Department Allocations

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. $0 B. $3,700 C. $3,750 D. $17,344

4B-5

Appendix 4B, Service Department Allocations

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. $418,700 B. $406,160 C. $416,273 D. $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. $1,036,914 B. $1,036,040 C. $1,024,310 D. $1,033,809

4B-6

Appendix 4B, Service Department Allocations

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. $29,871 B. $82,720 C. $34,689 D. $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. $345,276 B. $342,428 C. $334,685 D. $339,455

4B-7

Appendix 4B, Service Department Allocations

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. $485,219 B. $481,451 C. $476,168 D. $487,892

4B-8

Appendix 4B, Service Department Allocations

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. $251,200 B. $261,249 C. $263,460 D. $262,820

14. Lisby, Inc., allocates service department costs to operating departments using the stepdown 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. $226,258 B. $225,800 C. $211,940 D. $224,077

4B-9

Appendix 4B, Service Department Allocations

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. $456,993 B. $456,904 C. $409,220 D. $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. $390,036 B. $380,828 C. $389,712 D. $365,886

4B-10

Appendix 4B, Service Department Allocations

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. $5,600 B. $6,720 C. $5,250 D. $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. $0 B. $625 C. $698 D. $750

4B-11

Appendix 4B, Service Department Allocations

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. $172,000 B. $180,000 C. $198,000 D. $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. $231,000 B. $240,000 C. $258,000 D. $270,000

4B-12

Appendix 4B, Service Department Allocations

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. $147,100 B. $161,000 C. $182,750 D. $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. $66,425 B. $73,000 C. $84,500 D. $88,000

4B-13

Appendix 4B, Service Department Allocations

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. $0 B. $6,750 C. $12,375 D. $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. $37,806 B. $28,217 C. $28,830 D. $26,524

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

4B-14

Appendix 4B, Service Department Allocations

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. $18,482 B. $14,333 C. $12,968 D. $14,720

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

4B-15

Appendix 4B, Service Department Allocations

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. $28,688 B. $66,435 C. $18,427 D. $25,500

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

4B-16

Appendix 4B, Service Department Allocations

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.

30. The total amount of Information Technology Department cost allocated to the two operating departments is closest to: A. $37,740 B. $24,997 C. $98,705 D. $33,474

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

4B-17

Appendix 4B, Service Department Allocations

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. $0 B. $20,000 C. $19,048 D. $18,000

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

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

4B-18

Appendix 4B, Service Department Allocations

35. The amount of Maintenance Department cost allocated to the Generation Department would be: A. $132,000 B. $123,750 C. $150,685 D. $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. $13,599 B. $18,426 C. $16,123 D. $17,430

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

4B-19

Appendix 4B, Service Department Allocations

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. $32,640 B. $14,569 C. $34,124 D. $29,440

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

4B-20

Appendix 4B, Service Department Allocations

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. $20,285 B. $17,929 C. $18,560 D. $39,774

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

4B-21

Appendix 4B, Service Department Allocations

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:

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

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

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

4B-22

Appendix 4B, Service Department Allocations

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

Appendix 4B, Service Department Allocations

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

4B-24

Appendix 4B, Service Department Allocations

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

4B-25

Appendix 4B, Service Department Allocations

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

4B-26

Appendix 4B, Service Department Allocations

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

Appendix 4B, Service Department Allocations

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

4B-28

Appendix 4B, Service Department Allocations

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

4B-29

Appendix 4B, Service Department Allocations

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.

Administration Department costs are allocated first on the basis of employees and IT Department costs are allocated second on the basis of computers. Required: Allocate the service department costs to the operating departments using the step-down method.

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 Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 10 Learning Objective: 11 Level: Medium

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

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 10 Level: 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

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 11 Level: Medium

4B-31

Appendix 4B, Service Department Allocations Key

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

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 11 Level: Medium

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 department B. when all of the costs in the service departments are fixed costs C. when there is an equal amount of service departments and operating departments D. both A and B above

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 10 Learning Objective: 11 Level: 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 Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 10 Learning Objective: 11 Level: Medium

4B-32

Appendix 4B, Service Department Allocations Key

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. $0 B. $3,700 C. $3,750 D. $17,344 The costs of one service department would not be allocated to another service department using the direct method.

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 10 Level: Medium

4B-33

Appendix 4B, Service Department Allocations Key

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. $418,700 B. $406,160 C. $416,273 D. $418,390 Allocation rate for Administrative costs = Cost to be allocated Allocation base = $26,400 (21,000 + 19,000) = $0.66 Allocation rate for Facilities costs = Cost to be allocated Allocation base = $67,550 (31,000 + 4,000) = $1.93

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 10 Level: Easy

4B-34

Appendix 4B, Service Department Allocations Key

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. $1,036,914 B. $1,036,040 C. $1,024,310 D. $1,033,809 Allocation rate for Personnel costs = Cost to be allocated Allocation base = $27,600 (23,000 + 17,000) = $0.69 Allocation rate for Support costs = Cost to be allocated Allocation base = $77,550 (38,000 + 9,000) = $1.65

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 10 Level: Easy

4B-35

Appendix 4B, Service Department Allocations Key

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. $29,871 B. $82,720 C. $34,689 D. $21,946 Allocation rate for Data Processing costs = Cost to be allocated Allocation base = $34,689 (55 + 38) = $373 Allocation rate for Personnel costs = Cost to be allocated Allocation base = $21,755 (59 + 36) = $229

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 10 Level: Easy

4B-36

Appendix 4B, Service Department Allocations Key

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. $345,276 B. $342,428 C. $334,685 D. $339,455 Allocation rate for Information Technology costs = Cost to be allocated Allocation base = $36,828 (49 + 44) = $396 Allocation rate for Personnel costs = Cost to be allocated Allocation base = $22,989 (56 + 41) = $237

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 10 Level: Easy

4B-37

Appendix 4B, Service Department Allocations Key

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. $485,219 B. $481,451 C. $476,168 D. $487,892 Allocation rate for Telecommunications costs = Cost to be allocated Allocation base = $34,485 (54 + 41) = $363 Allocation rate for Administration costs = Cost to be allocated Allocation base = $27,608 (100 + 36) = $203

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 10 Level: Easy

4B-38

Appendix 4B, Service Department Allocations Key

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. $251,200 B. $261,249 C. $263,460 D. $262,820

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

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 11 Level: Easy

4B-39

Appendix 4B, Service Department Allocations Key

14. Lisby, Inc., allocates service department costs to operating departments using the stepdown 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. $226,258 B. $225,800 C. $211,940 D. $224,077

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

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 11 Level: Easy

4B-40

Appendix 4B, Service Department Allocations Key

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. $456,993 B. $456,904 C. $409,220 D. $447,702

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

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 11 Level: Easy

4B-41

Appendix 4B, Service Department Allocations Key

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. $390,036 B. $380,828 C. $389,712 D. $365,886

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

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 11 Level: Easy

4B-42

Appendix 4B, Service Department Allocations Key

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. $5,600 B. $6,720 C. $5,250 D. $5,700 Allocation rate for Cafeteria costs = Cost to be allocated Allocation base = $12,000 (84 + 66) = $80 Allocation rate for Maintenance costs = Cost to be allocated Allocation base = $10,000 (5,250 + 4,750) = $1

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 10 Level: Medium

4B-43

Appendix 4B, Service Department Allocations Key

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. $0 B. $625 C. $698 D. $750

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

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 11 Level: Medium

4B-44

Appendix 4B, Service Department Allocations Key

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. $172,000 B. $180,000 C. $198,000 D. $202,500

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 10 Level: Medium

4B-45

Appendix 4B, Service Department Allocations Key

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. $231,000 B. $240,000 C. $258,000 D. $270,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 11 Level: Medium

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

Appendix 4B, Service Department Allocations Key

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. $147,100 B. $161,000 C. $182,750 D. $192,250 Allocation rate for Power Generation costs = Cost to be allocated Allocation base = $250,000 (475,000 + 209,000 + 76,000) = $0.33 Allocation rate for Laundry costs = Cost to be allocated Allocation base = $60,000 (378 + 189 + 63) = $95.24

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 10 Level: Medium

4B-47

Appendix 4B, Service Department Allocations Key

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. $66,425 B. $73,000 C. $84,500 D. $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) = $0.26 Allocation rate for Laundry Department costs = Cost to be allocated Allocation base = ($60,000 + $50,000) (378 + 189 + 63) = $174.60 Service cost allocated to Maternity = $55,000 + $33,000 = $88,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 11 Level: Medium

4B-48

Appendix 4B, Service Department Allocations Key

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. $0 B. $6,750 C. $12,375 D. $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) = $0.26 Allocation rate for Laundry Department costs = Cost to be allocated Allocation base = ($60,000 + $50,000) (378 + 189 + 63) = $174.60

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 11 Level: Easy

4B-49

Appendix 4B, Service Department Allocations Key

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. $37,806 B. $28,217 C. $28,830 D. $26,524 Allocation rate for Administrative costs = Cost to be allocated Allocation base = $42,780 (31,000 + 15,000) = $0.93 Allocation rate for Facilities costs = Cost to be allocated Allocation base = $65,790 (38,000 + 5,000) = $1.53

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 10 Level: Easy

4B-50

Appendix 4B, Service Department Allocations Key

25. The total Customer solutions Department cost after the allocations of service department costs is closest to: A. $696,940 B. $682,990 C. $694,753 D. $697,172 Allocation rate for Administrative costs = Cost to be allocated Allocation base = $42,780 (31,000 + 15,000) = $0.93 Allocation rate for Facilities costs = Cost to be allocated Allocation base = $65,790 (38,000 + 5,000) = $1.53

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 10 Level: Easy

4B-51

Appendix 4B, Service Department Allocations Key

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. $18,482 B. $14,333 C. $12,968 D. $14,720 Allocation rate for Administrative costs = Cost to be allocated Allocation base = $23,680 (23,000 + 14,000) = $0.64 Allocation rate for Support costs = Cost to be allocated Allocation base = $41,000 (32,000 + 9,000) = $1.00

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 10 Level: Easy

4B-52

Appendix 4B, Service Department Allocations Key

27. The total Pediatrics Department cost after the allocations of service department costs is closest to: A. $521,999 B. $524,830 C. $515,870 D. $525,825 Allocation rate for Administrative costs = Cost to be allocated Allocation base = $23,680 (23,000 + 14,000) = $0.64 Allocation rate for Support costs = Cost to be allocated Allocation base = $41,000 (32,000 + 9,000) = $1.00

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 10 Level: Easy

4B-53

Appendix 4B, Service Department Allocations Key

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. $28,688 B. $66,435 C. $18,427 D. $25,500 Allocation rate for Information Technology costs = Cost to be allocated Allocation base = $28,688 (41 + 47) = $326 Allocation rate for Personnel costs = Cost to be allocated Allocation base = $17,425 (47 + 38) = $205

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 10 Level: Easy

4B-54

Appendix 4B, Service Department Allocations Key

29. The total Fabrication Department cost after service department allocations is closest to: A. $235,821 B. $227,905 C. $234,336 D. $231,641 Allocation rate for Information Technology costs = Cost to be allocated Allocation base = $28,688 (41 + 47) = $326 Allocation rate for Personnel costs = Cost to be allocated Allocation base = $17,425 (47 + 38) = $205

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 10 Level: Easy

4B-55

Appendix 4B, Service Department Allocations Key

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.

30. The total amount of Information Technology Department cost allocated to the two operating departments is closest to: A. $37,740 B. $24,997 C. $98,705 D. $33,474 Allocation rate for Information Technology costs = Cost to be allocated Allocation base = $37,740 (53 + 49) = $370 Allocation rate for Administration costs = Cost to be allocated Allocation base = $33,864 (92 + 44) = $249

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 10 Level: Easy

4B-56

Appendix 4B, Service Department Allocations Key

31. The total Surgery Department cost after service department allocations is closest to: A. $463,368 B. $457,933 C. $470,058 D. $467,841 Allocation rate for Information Technology costs = Cost to be allocated Allocation base = $37,740 (53 + 49) = $370 Allocation rate for Administration costs = Cost to be allocated Allocation base = $33,864 (92 + 44) = $249

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 10 Level: Easy

4B-57

Appendix 4B, Service Department Allocations Key

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. $0 B. $20,000 C. $19,048 D. $18,000

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

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 11 Level: Medium

4B-58

Appendix 4B, Service Department Allocations Key

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

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

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 11 Level: Medium

4B-59

Appendix 4B, Service Department Allocations Key

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

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

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 11 Level: Medium

4B-60

Appendix 4B, Service Department Allocations Key

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

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

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 11 Level: Medium

4B-61

Appendix 4B, Service Department Allocations Key

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

Appendix 4B, Service Department Allocations Key

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. $13,599 B. $18,426 C. $16,123 D. $17,430

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

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 11 Level: Easy

4B-63

Appendix 4B, Service Department Allocations Key

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

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

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 11 Level: Easy

4B-64

Appendix 4B, Service Department Allocations Key

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. $32,640 B. $14,569 C. $34,124 D. $29,440

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

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 11 Level: Easy

4B-65

Appendix 4B, Service Department Allocations Key

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

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

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 11 Level: Easy

4B-66

Appendix 4B, Service Department Allocations Key

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. $20,285 B. $17,929 C. $18,560 D. $39,774

Allocation rate for Personnel Department costs = Cost to be allocated Allocation base = $49,445 (29 + 128 + 184) = $145 Allocation rate for IT Department costs = Cost to be allocated Allocation base = ($19,327 + $4,205) (82 + 130) = $111

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 11 Level: Easy

4B-67

Appendix 4B, Service Department Allocations Key

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

Allocation rate for Personnel Department costs = Cost to be allocated Allocation base = $49,445 (29 + 128 + 184) = $145 Allocation rate for IT Department costs = Cost to be allocated Allocation base = ($19,327 + $4,205) (82 + 130) = $111

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 11 Level: Easy

4B-68

Appendix 4B, Service Department Allocations Key

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:

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

4B-69

Appendix 4B, Service Department Allocations Key

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

Allocation rate for Personnel Department costs = Cost to be allocated Allocation base = $78,120 (20 + 124 + 171) = $248 Allocation rate for IT Department costs = Cost to be allocated Allocation base = ($36,340 + $4,960) (78 + 158) = $175

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 11 Level: Easy

4B-70

Appendix 4B, Service Department Allocations Key

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

Allocation rate for Personnel Department costs = Cost to be allocated Allocation base = $78,120 (20 + 124 + 171) = $248 Allocation rate for IT Department costs = Cost to be allocated Allocation base = ($36,340 + $4,960) (78 + 158) = $175

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 11 Level: Easy

4B-71

Appendix 4B, Service Department Allocations Key

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

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 10 Level: Easy

4B-72

Appendix 4B, Service Department Allocations Key

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: Allocate the service department costs to the operating departments using the direct method. Allocation rate for Service Department A costs = Cost to be allocated Allocation base = $38,000 (28,000 + 12,000) = $0.95 Allocation rate for Service Department B costs = Cost to be allocated Allocation base = $86,240 (37,000 + 7,000) = $1.96

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 10 Level: Easy

4B-73

Appendix 4B, Service Department Allocations Key

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: Allocate the service department costs to the operating departments using the direct method. Allocation rate for Information Technology costs = Cost to be allocated Allocation base = $35,114 / (56 + 41) = $362.00 Allocation rate for Personnel costs = Cost to be allocated Allocation base = $42,483 / (107 + 40) = $289.00

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 10 Level: Easy

4B-74

Appendix 4B, Service Department Allocations Key

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: Allocate the service department costs to the operating departments using the direct method. Allocation rate for Information Technology costs = Cost to be allocated Allocation base = $30,082 / (58 + 31) = $338.00 Allocation rate for Administration costs = Cost to be allocated Allocation base = $39,760 / (112 + 30) = $280.00

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 10 Level: Easy

4B-75

Appendix 4B, Service Department Allocations Key

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.

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

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 11 Level: Easy

4B-76

Appendix 4B, Service Department Allocations Key

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

Allocation rate for Administration Department costs = Cost to be allocated Allocation base = $31,590 (2,000 + 21,000 + 16,000) = $0.81 Allocation rate for Facilities Department costs = Cost to be allocated Allocation base = ($78,180 + $1,620) (38,000 + 4,000) = $1.90

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 11 Level: Easy

4B-77

Appendix 4B, Service Department Allocations Key

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

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

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 11 Level: Easy

4B-78

Appendix 4B, Service Department Allocations Key

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.

Administration Department costs are allocated first on the basis of employees and IT Department costs are allocated second on the basis of computers. Required: Allocate the service department costs to the operating departments using the step-down method.

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

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Learning Objective: 11 Level: Easy

4B-79