Required information Exercise 7-25 (Algo) Selection of an Allocation Base [LO 7-1, 7-3] [The following information applies to the questions displayed below.] Great Ape Glassworks manufactures glass used for the screens on smartphones. It has two producing departments, P1 and P2, and only one service department, S1. The company is able to track overhead to the various departments but wants to allocate the service department costs to the producing departments. However, the company is not sure which of the multiple allocation bases should be selected. The data it collected appear in the table below. Overhead Assigned Department P1 P2 $ 156,000 259,000 S1 78,000 Potential allocation base P1 P2 Employee headcount 60 Space used (in square feet) 5,400 Productive capacity (in units) 3-year average percentage of S1 output used 45,150 60% 20 6,600 83,850 40% Part 1 (Algo) Required: 1. Determine the total estimated overhead cost for each of the producing departments after allocating the cost of the service department: a. Using employee headcount as the allocation base. b. Using occupied space as the allocation base. c. Using productive capacity as the allocation base. d. Using the 3-year average use as the allocation base. a. Using employee headcount as the allocation base b. Using occupied space as the allocation base c. Using productive capacity as the allocation base d. Using the 3-year average use as the allocation base P1 P2 Total $ 0 $ 0 $ 0 $ 0 Exercise 7-26 (Algo) Cost Allocation in Health Care [LO 7-2, 7-3, 7-5] Cost allocation is often the centerpiece of conflict that is resolved in court cases. The litigation usually involves the dispute over how costs are allocated to a product or product line that is of interest to the plaintiff. This is particularly an issue when a company produces some products or services for a price-competitive market while other products or services are produced for a governmental unit on a cost-plus or reimbursement basis. Nursing Care Incorporated, or NCI, operates both a small nursing home and a retirement home. There is a single kitchen used to provide meals to both the nursing home and retirement home, meaning labor costs and utilities costs of the kitchen are shared by the two homes. There is also a centralized cleaning department that provides the cleaning services for both homes as well as the kitchen. The nursing home serves only indigent patients who are on Medicaid. The state Department of Health and Family Services (DHFS) reimburses NCI at Medicaid-approved cost reimbursement rates. The Medicaid reimbursement rates are based on cost information supplied by NCI. The relevant cost and allocation data for the most recent year appear in the following table. Cleaning department Central kitchen Annual Operating Cost $ 126,000 $ 174,000 Allocation Base Square feet of space Number of residents Required: Kitchen 1,000 Nursing Home 2,000 6 Retirement Home 3,000 4 1. Management of NCI currently allocates the kitchen and cleaning department costs based on the number of residents in each home. Determine the amount of service department costs assigned to each of the homes using this allocation base. 2. DHFS auditors believe the step method of allocation should be used by first assigning cleaning costs based on square feet and then kitchen costs based on number of residents. Determine the amount of service department costs assigned to each of the homes using this allocation method. (Do not round percentages in your calculations.) Nursing Home Retirement Home Total 1. Direct method $ 0 2. Step method $ 0