Question

Bens Corporation has three service departments (Repairs, HR, and IT) and two production departments (M1 and M2). The following usage data for each of the service departments for the previous period follow.
Repairs HR IT M1 M2
Repairs _____ 0% 0% 40% 60%
HR 10% _____ 20% 35% 35%
IT 0% 10% ____ 20% 70%

The direct costs of the service departments in the previous period were $36,000 for Repairs, $55,600 for HR, and $81,000 for IT.

Required:
Use the step method to allocate the service department costs to the production departments. Allocate HR costs first, followed by IT, and then Repairs

Answer 1

Answer:

Bens Corporation

Allocation of Service Departments' Direct Costs:

                               Repairs        HR           IT          M1         M2           Total    

Direct costs          $36,000  $55,600  $81,000                              $172,600

Step allocation:

HR direct costs        5,560   -55,600      11,120    19,460    19,460              0

IT costs                            0              0   -92,120    20,471     71,649              0

Repairs costs        -41,560              0             0    16,624    24,936              0

Total costs allocated      0              0             0 $56,555 $116,045 $172,600

Explanation:

a) Data and Calculations:

Usage data:

                      Repairs     HR       IT     M1      M2

Repairs                            0%     0%   40%   60%

HR                     10%       __     20%   35%   35%

IT                        0%       10%    __     20%   70%

HR Costs = $55,600:

Repairs = $5,560 ($55,600 * 10%)

IT = $11,120 ($55,600 * 20%)

M1 = $19,460 ($55,600 * 35%)

M2 = $19,460 ($55,600 * 35%)

IT costs = $92,120:

Repairs = $0 ($92,120 * 0%)

M1 = $20,471 ($92,120 * 20/90)

m2 = $71,649 ($92,120 * 70/90)

Repair costs = $41,560:

M1 = $16,624 ($41,560 * 40%)

M2 = $24,936 ($41,560 * 60%)

Answer 2

Answer:

HR allocation:

$3,960 = 0.10 × $39,600

$7,920 = 0.20 × $39,600

$13,860 = 0.35 × $39,600

$13,860 = 0.35 × $39,600

 

IT allocation:

$52,920 cost of IT is $45,000 (direct cost) + $7,920 (allocated from HR)

 

$11,760 = 0.2 × $52,920

(0.2 + 0.7)  

$41,160 = 0.7 × $52,920

(0.2 + 0.7)

 

Repairs allocation:

$23,960 cost of Repair is $20,000 (direct cost) + $3,960 (allocated from HR)

$9,584 = 0.40 × $23,960

$14,376 = 0.60 × $23,960