BluStar Company has two service departments, Administration and Accounting, and two operating departments, Domestic and International. Administration costs are allocated on the basis of employees, and Accounting costs are allocated on the basis of number of transactions. A summary of BluStar operations follows: Administration Accounting Domestic International Employees â 27 49 24 Transactions 33,000 â 23,000 92,000 Department direct costs $ 361,000 $ 143,000 $ 930,000 $ 3,540,000 Required: a. Allocate the cost of the service departments to the operating departments using the direct method. (Do not round intermediate calculations. Negative amounts should be indicated by a minus sign.) b. Allocate the cost of the service departments to the operating departments using the step method. Start with Administration. (Do not round intermediate calculations. Negative amounts should be indicated by a minus sign.) c. Allocate the cost of the service departments to the operating departments using the reciprocal method
BluStar Company has two service departments, Administration and Accounting, and two operating departments, Domestic and International. Administration costs are allocated on the basis of employees, and Accounting costs are allocated on the basis of number of transactions. A summary of BluStar operations follows: Administration Accounting Domestic International Employees â 27 49 24 Transactions 33,000 â 23,000 92,000 Department direct costs $ 361,000 $ 143,000 $ 930,000 $ 3,540,000 Required: a. Allocate the cost of the service departments to the operating departments using the direct method. (Do not round intermediate calculations. Negative amounts should be indicated by a minus sign.) b. Allocate the cost of the service departments to the operating departments using the step method. Start with Administration. (Do not round intermediate calculations. Negative amounts should be indicated by a minus sign.) c. Allocate the cost of the service departments to the operating departments using the reciprocal method
Related questions
You are working in accounting department of Frank Compagny.
You will allocate the support department costs to operating departments using Direct Method. You have also to explain the details of calculations to Mr Ibrahim who is a student having training in Frank company (you will explain the formulas used in the calculations to Mr Ibrahim).
The information for the current period is as follows:
| Support Departments | Operating Departments | ||||
| Administration | Houskeeping | Medical | Dintal | Total | |
| cost | 32,400 | 50,000 | 130,000 | 180,000 | 310,000 |
Allocation Bases:
| Support Departments | Operating Departments | ||||
| Administration | Houskeeping | Medical | Dental | Total | |
| No. of Employees | 2 | 2 | 6 | 2 | 12 |
| Square Feet | 900 | 100 | 6,000 | 4,000 | 11,000 |
Administration Cost will be allocated using number of employees and Housekeeping cost will be allocated using square feet.
Explain to Mr Ibrahim the objectives of allocation of support department costs.
Discuss with Mr Ibrahim why you are using the direct method. What are the other possible methods? What is the difference between these methods and when we will have to use each method?
Valron Company has two support departments, Human Resources andGeneral Factory, and two producing departments, Fabricating andAssembly.
| Support Departments | Producing Departments | ||||
| Human Resources | General Factory | Fabricating | Assembly | ||
| Direct costs | $180,000 | $390,000 | $114,800 | $98,000 | |
| Normal activity: | |||||
| Number of employees | â | 40 | 70 | 160 | |
| Square footage | 2,000 | â | 5,900 | 13,500 | |
Resources Department are allocated on the basis of number ofemployees, and the costs of General Factory are allocated on thebasis of square footage. Valron Company uses the sequential methodto allocate support department costs. The support departments areranked in order of highest cost to lowest cost.
Required:
1. Calculate the allocation ratios (rounded tofour significant digits) for the four departments using thesequential method. If an amount is zero, enter "0". Use the roundedvalues for subsequent calculations.
| Proportion of Driver Used by | ||||
| Human Resources | General Factory | Fabricating | Assembly | |
| Human Resources | ||||
| General Factory | ||||
2. Using the sequential method, allocate thecosts of the Human Resources and General Factory departments to theFabricating and Assembly departments. If an amount is zero,enter"0". Round your answers to the nearest dollar.
| Support Departments | Producing Departments | ||||
| Human Resources | General Factory | Fabricating | Assembly | ||
| Direct costs | $ | $ | $ | $ | |
| Allocate: | |||||
| General Factory | |||||
| Human Resources | |||||
| Total after allocation | $ | $ | $ | $ | |
