Problem $6-70($Algo$)$ Predetermined Rates and Product Profitability: Two$-$Stage Cost Allocation $($LO $6-1,2,3)$

Harmon Recycling Services $($HRS$),$ a not$-$for$-$profit organization, has two drop$-$off centers, Westside and Eastside. The company is considering using a two$-$stage cost allocation system and wants to assess the effects on reported product profits.

More detailed financial information for HRS follows:

Eastside Westside Total

Clients

$25,000$

$6,25031,250$

Revenues $ $1,440,000$ $ $960,000$ $ $2,400,000$

Staff hours $8,1002,70010,800$

Staff costs $ $528,000$ $ $432,000$ $ $960,000$

General operating costs:

User$-$related $ $720,000$

Staff$-$related $720,000$

Total general operating costs $ $1,440,000$

The company plans to use Clients to allocate user$-$related costs and Staff Costs to allocate staff$-$related costs.

An accounting student from the local college working on a related project at HRS as a part of a course, suggested a further revision after an analysis of the general operating accounts. Specifically, the student suggested that the staff$-$related costs should be separated into two cost pools instead of one. One pool would be allocated based on staff hours and the other pool allocated based on staff costs.

The general operating costs could be summarized as follows:

User$-$related operating costs $ $720,000$

Staff hour$-$related operating costs $576,000$

Staff cost$-$related operating cost $144,000$

Total general operating cost $ $1,440,000$

Required:

Compute the predetermined overhead rate used to apply the three general operating cost pools to the two center $($Eastside and Westside$)$ assuming HRS uses the the student's proposed two$-$stage cost system to allocate general operating costs.

Based on the rates computed in requirement $($a$),$ what is the surplus $($revenues minus costs$)$ for each service?