Second Company has three service departments, Administration, Communications and Facilities, and two production departments, Deposits and Loans.
Question:
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.
a.
Assume that the bank elects to distribute service department costs to production departments
using direct method, determine the total costs of each department after allocation of service
department costs.
b. Assume that the bank elects to distribute service department costs to other departments using
the step method (starting with Facilities and then Communication), determine the total costs of
each department after allocation of service department costs.
c.
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.
Expert Answer:
a To allocate service department costs to production departments using the direct method well distribute costs based on the specific allocation bases ... View the full answer
