Consider the following departmental costs, where human resources and janitorial support are considered to be service...

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Consider the following departmental costs, where human resources and janitorial support are considered to be service departments. In the top illustration, use the pick lists accessible from within the four boxed areas to select the correct cost allocations, assuming use of the direct method. In the bottom illustration, use the five boxed areas to complete the cost allocation using the step method. Assume human resource costs are allocated based on number of employees. Assume janitorial costs are allocated based on square footage. For the step allocation assume that human resources are allocated first, then janitorial. Correct selections within each boxed area will turn green. When all nine boxes are green, contemplate carefully why different cost allocations occur under the alternative methods. DIRECT ALLOCATION Human Resources Janitorial Fabrication Assembly Department costs $ 600,000 $ 400,000 $ 4,000,000 $ 6,000,000 HR allocation (600,000) 240,000 360,000 (400,000) 100,000 Janitorial allocation Totals after allocation 300,000 $ 4,540,000 $ 6,460,000 Number of employees n/a n/a 40 60 Square feet n/a n/a 7,500 2,500 STEP ALLOCATION Human Resources Janitorial Fabrication Assembly Department costs $ 600,000 $ 400,000 $ 4,000,000 $ 6,000,000 HR allocation (600,000) 100,000 200,000 300,000 Janitorial allocation (500,000) 375,000 125,000 Totals after allocation $ $ 4,575,000 $ 6,425,000 Number of employees n/a 20 40 60 Square feet n/a n/a 7,500 2,500 Consider the following departmental costs, where human resources and janitorial support are considered to be service departments. In the top illustration, use the pick lists accessible from within the four boxed areas to select the correct cost allocations, assuming use of the direct method. In the bottom illustration, use the five boxed areas to complete the cost allocation using the step method. Assume human resource costs are allocated based on number of employees. Assume janitorial costs are allocated based on square footage. For the step allocation assume that human resources are allocated first, then janitorial. Correct selections within each boxed area will turn green. When all nine boxes are green, contemplate carefully why different cost allocations occur under the alternative methods. DIRECT ALLOCATION Human Resources Janitorial Fabrication Assembly Department costs $ 600,000 $ 400,000 $ 4,000,000 $ 6,000,000 HR allocation (600,000) 240,000 360,000 (400,000) 100,000 Janitorial allocation Totals after allocation 300,000 $ 4,540,000 $ 6,460,000 Number of employees n/a n/a 40 60 Square feet n/a n/a 7,500 2,500 STEP ALLOCATION Human Resources Janitorial Fabrication Assembly Department costs $ 600,000 $ 400,000 $ 4,000,000 $ 6,000,000 HR allocation (600,000) 100,000 200,000 300,000 Janitorial allocation (500,000) 375,000 125,000 Totals after allocation $ $ 4,575,000 $ 6,425,000 Number of employees n/a 20 40 60 Square feet n/a n/a 7,500 2,500

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