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Exam 21: Service Department Allocations

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Question 1

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Under the step-down method of cost allocation,the service department that provides the least amount of service to the other departments should be allocated first.

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B) False

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Question 2

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The step-down method of cost allocation is more accurate than the direct method because the step-down method takes into account the services that service departments provide to each other.

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B) False

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Question 3

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(Appendix 4B) Watts Corporation has a Custodial Services Department that services the company's Maintenance Department and its two operating departments. Costs of the Custodial Services Department are allocated to other departments on the basis of square feet of space occupied. The amount of space occupied by each department is given below: Budgeted costs in the Custodial Services Department total $43,200. -Suppose the company uses the step-down method of allocation and the costs of the Custodial Services Department are allocated first.The amount of Custodial Services Department cost allocated to the Maintenance Department would be:

Stoltz Corporation uses the direct method to allocate service department costs to operating departments.The company has two service departments,Data Processing and Personnel,and two operating departments,Assembly and Finishing. Data Processing Department costs are allocated on the basis of computer workstations and Personnel Department costs are allocated on the basis of employees.The total amount of Data Processing Department cost allocated to the two operating departments is closest to:

(Appendix 4B) Anchor Corporation has two service departments, Personnel and Engineering, and two operating departments. The costs of the Personnel Department are allocated to other departments on the basis of the number of employees in the departments. Departments and number of employees are as follows: Costs in the Personnel Department total $168,283 per year. -Suppose the company uses the direct method of allocation.The amount of Personnel Department cost that would be allocated to Operating Department 2 would be closest to:

(Appendix 4B) Anchor Corporation has two service departments, Personnel and Engineering, and two operating departments. The costs of the Personnel Department are allocated to other departments on the basis of the number of employees in the departments. Departments and number of employees are as follows: Costs in the Personnel Department total $168,283 per year. -Assume that SJM uses the step-down method to allocate service department costs,starting with Maintenance.The total overhead allocated from Cafeteria to Processing would be closest to:

Rondo Children's Clinic allocates service department costs to operating departments using the step-down method.The clinic has two service departments,Administration and Information Technology (IT) ,and two operating departments,Prenatal and Pediatric.Data concerning those departments follow: Administration costs are allocated first on the basis of employees and IT costs are allocated second on the basis of PCs.The total Pediatric Department cost after allocations is closest to:

Sandven Corporation uses the direct method to allocate its two service department costs to its two operating departments.Data concerning those departments follow: Service Department A costs are allocated on the basis of allocation base A and Service Department B costs are allocated on the basis of allocation base B. Required: Allocate the service department costs to the operating departments using the direct method.

(Appendix 4B) Ockey Corporation uses the direct method to allocate service department costs to operating departments. The company has two service departments, Information Technology and Personnel, and two operating departments, Fabrication and Customization. Information Technology Department costs are allocated on the basis of computer workstations and Personnel Department costs are allocated on the basis of employees. -The total amount of Information Technology Department cost allocated to the two operating departments is closest to:

Cervetti,Inc.,allocates service department costs to operating departments using the step-down method.The company has two service departments,Administration and Physical Plant,and two operating departments,Assembly and Testing.Data concerning those departments follow: Administration Department costs are allocated first on the basis of employee time and Physical Plant Department costs are allocated second on the basis of space occupied.The total Testing Department cost after allocations is closest to:

(Appendix 4B) The Thomas Corporation has two service departments and two operating departments. The following data are available for a recent period: Thomas allocates service department costs by the step-down method in the following order: Administrative Department costs are allocated first, based on number of employees; Custodial Department costs are allocated second, based on square feet occupied. No distinction is made between fixed and variable costs. -After all allocations,the total amount of overhead cost contained in the Assembly Department will be:

The step-down method ultimately results in less total cost being allocated to operating departments than the direct method.

Reddicks Clinic uses the step-down method to allocate service department costs to operating departments.The clinic has two service departments,Personnel and Information Technology (IT) ,and two operating departments,Family Medicine and Pediatrics.Data concerning those departments follow: Personnel costs are allocated first on the basis of employees and IT costs are allocated second on the basis of PCs.The total Pediatrics Department cost after allocations is closest to:

The direct method is used by Marrero Publishing,Inc.,to allocate service department costs to operating departments.The company has two service departments,Information Technology and Personnel,and two operating departments,Prepress and Printing. Information Technology Department costs are allocated on the basis of computer workstations and Personnel Department costs are allocated on the basis of employees.The total Prepress Department cost after service department allocations is closest to:

Georgeson Emergency Care Hospital uses the step-down method to allocate service department costs to operating departments.The hospital has two service departments,Administration and Information Technology (IT),and two operating departments,Emergency Room and Intensive Care. Administration Department costs are allocated first on the basis of employees and IT Department costs are allocated second on the basis of computers. Required: Allocate the service department costs to the operating departments using the step-down method.

Cerce Corporation uses the direct method to allocate service department costs to operating departments.The company has two service departments,Administrative and Facilities,and two operating departments,Assembly and Finishing. Administrative Department costs are allocated on the basis of employee hours and Facilities Department costs are allocated on the basis of space occupied. Required: Allocate the service department costs to the operating departments using the direct method.

The order in which the costs of service departments are allocated will affect the amounts allocated to an operating department when the direct method is used.

(Appendix 4B) The James Corporation has four departments with data as follows: -Cafeteria costs are allocated on the basis of number of employees.If the step-down method is used with costs of the Cafeteria allocated first,the amount of cost allocated from the Cafeteria to Maintenance would be:

Spivey Corporation has two service departments and two operating departments.Budgeted costs and budgeted activity in the various departments for the current year are shown below: The company uses the step-down method to allocate service department costs to operating departments.The costs of Service Department A are allocated first on the basis of square feet of space occupied.The costs of Service Department B are then allocated on the basis of number of employees in other departments.Predetermined overhead rates in the operating departments are based on machine hours. Required: a.Prepare a schedule showing the allocation of service department costs to other departments. b.Compute the predetermined overhead rate for each operating department.

Casas Corporation has two service departments,Personnel and Cafeteria,and two operating departments,Customer Care and Customer Solutions.The number of employees in each department are: The fixed costs of the Personnel Department are allocated on the basis of the number of employees.If these costs are budgeted at $42,150,the amount of Personnel Department cost allocated to the Cafeteria under the step-down method would be closest to: