Oakhaven Financial Planners has four service centers and three revenue centers. In order of use, the service centers are Administration, Information Services, Customer Service, and Client Accounting. The three revenue centers are Insurance, Investments, and Financial Plans. Administration’s costs are assigned based on percentage of time spent. Information Services’ costs are assigned based on the percentage of computer and Internet access time. Customer Service’s costs are assigned based on percentage of clients. Client Accounting’s costs are assigned based on the percentage of client transactions. Statistics for the service and revenue centers appear at the top of the facing page. Managers report these indirect costs for their departments:

Administration ......... $2,500

Information Services ....... 1,800

Customer Service ......... 5,000

Client Accounting ........ 1,000

Insurance ............ 2,600

Investments ........... 8,000

Financial Plans .......... 2,400

Total ............$23,300

Required
1. Use the direct method of cost allocation to determine the three revenue centers’ overhead costs.
2. Use the step method of cost allocation to determine the three revenue centers’ overhead costs.
3. Prepare departmental overhead rates for Insurance, Investments, and Financial Plans, assuming that the direct method of cost allocation is used and that the activity base is labor hours.
4. Prepare departmental overhead rates for Insurance, Investment, and Financial Plans, assuming that the step method of cost allocation is used and that the activity base is labor hours.
5. Manager Insight: Did the departmental overhead rates computed using the direct method and the step method of cost allocation differ?Why?

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Percentae Percentage Percentage Percentage of Clien Labor Clients Transactions Hours of Time of Access Time 15 of Center Administration Information Spent Services Customer Service Client Accounting Insurance Investments Financial Plans Total 6 25 25 12 25 15 20 100 830 500 664 1,994 25 70 20 10 100 60 20 100 100