BluStar Company has two service departments, Administration and Accounting, and two operating departments, Domestic and International. Administration costs are allocated on the basis of employees, and Accounting costs are allocated on the basis of number of transactions. A summary of BluStar operations follows:

Required
a. Allocate the cost of the service departments to the operating departments using the direct method.
b. Allocate the cost of the service departments to the operating departments using the step method. Start with Administration.
c. Allocate the cost of the service departments to the operating departments using the reciprocal method.
d. Comment on the results.

Transcribed Image Text:

Administration Accounting Domestic International 180 80,000 $144,000 $936,000 $3,600,000 Employees Transactions 45 20,000 25 25,000 Department direct costs$360,000