The Bayview Resort has three operating departments—the Convention Center, Food Services, and Guest Lodging—that are supported by three service departments General Administration, Cost Accounting, and Laundry. For billing and management control purposes, the resort manager wants to calculate each operating department’s direct costs plus its allocated share of service department costs. The company uses the step-down method of service department cost allocation beginning with the General Administration Department, followed by Cost Accounting, and Laundry. The allocation bases for each department are as follows:

                                                                    Allocation Base

General Administration:
Fixed costs . . . . . . . . . . . Long-run average number of employees
Cost Accounting:
Variable costs . . . . . . . . Number of transactions processed each period
Fixed costs . . . . . . . . . . Percentage of peak-period transaction processing needs

Laundry:
Variable costs . . . . . . . . Pounds of laundry washed each period
Fixed . . . . . . . . . . . . . . .  Percentage of peak-period laundry washing needs

The following additional data is available for a recent quarter:

Required:

1. Using the step-down method, allocate the service department variable costs to the operating departments. What is the total amount of direct and allocated variable costs within each operating department?

2. Using the step-down method, allocate the service department fixed costs to the operating departments. What is the total amount of direct and allocated fixed costs within each operating department?
3. Calculate each operating department’s total direct and allocated variable costs plus its total
direct and allocated fixed costs.

Transcribed Image Text:

Service Departments Operating Departments General Cost Convention Food Guest Administration Accounting Laundry Center Services Lodging Total $ 70,000 $ 52,000 $ 24,000 $ 289,000 1,331,900 Variable costs. 2$ $143,000 $ Fixed costs. 200,000 110,000 65,900 95,000 375,000 486,000 Total overhead cost. $200,000 $180,000 $208,900 $95,000 $427,000 $510,000 $1,620,900 Percentage of peak-period resource usage 10% 4% 30% 16% 40% 100% Number of transactions processed Percentage of peak-period transaction processing needs Pounds of laundry washed Percentage of peak-period laundry washing needs 800 1,200 3,000 9,000 14,000 7% 13% 20% 60% 100% 20,000 15,000 210,000 245,000 10% 6% 84% 100%