Beankeepers LLP is a small firm which has two service departments, Finance and Human Resources, as well as three operating departments providing Audit, Corporate Secretarial and Taxation services to clients. Departmental costs for the Finance Department are allocated based on payroll costs while for Human Resources Department it is allocated based on number of employees. The following information has been gathered for the current year:

	Finance	Human Resources	Audit	Corporate Secretarial	Taxation
Total Direct department costs	$36,000	$18,000	$400,000	$700,000	$300,000
Department payroll costs	$30,000	$16,000	$300,000	$450,000	$150,000
Number of employees	2	2	9	16	5

The Total Direct department costs are inclusive of the department payroll costs. Departmental pre-determined overhead rates are based on number of hours worked by employees. Each employee works 40 hours per week over a 50-week annual period.

Required:

1. (i) Compute the total departmental costs for all three operating departments using the direct method of allocating the service department costs.

2. Compute the departmental pre-determined overhead rates for each of the three departments based on the results computed in (i). (Provide your final answers to two decimal places of a dollar.)

2. (i) If the step down method is used, explain which service department should be allocated first.

2. Calculate the total departmental costs for all three operating departments, using the step down method beginning with the Finance Department.

3. Provide explanation on the difference in the total departmental cost for the operating departments under the Direct and the Step Down methods and comment on whether the choice of allocation method has a significant impact.

Answer rating: 100% (QA)

a i Direct Allocation Service Department Human Finance Resource 36000 18000 Operating Departments Co... View the full answer