METHOD: ALGEBRAIC METHOD

Second Company has three service departments, Administration, Communications and Facilities, and two production departments, Deposits and Loans. A summary of costs and other data for each department prior to allocation of service department costs for the year ended December 31 follows:

Administration Communication Facilities Deposits Loans

Direct Costs P200,000 P300,000 P254,000 P8,000,000 P5,000,000

Employee hours 24,800 33,600 21,600 450,000 350,000

No. of employees 9 15 6 210 150

Square footage occupied 4,900 13,440 5,600 246,400 201,600

The costs of the service departments are allocated on the following bases: Administration, employee hours; Communication, number of employees; and Facilities, square footage occupied.

1. Assume that the bank elects to distribute service department costs to other departments using algebraic method, determine the total costs of each department after allocation of service department costs.

WHAT IS THE VALUE OF A,B,C if

A=Administration

B= Communication

C=Facilities