Chapter 04 - Appendix B Service Department Allocations

LO11: Step-down method (App 4B)

LO10: Direct method (App 4B)

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Question Type T/F T/F T/F T/F Conceptual M/C Conceptual M/C M/C M/C M/C M/C M/C M/C M/C M/C M/C

Professional Exam Adapted

Difficulty

ID 6/e: 16-1 7/e: 16-14 6/e: 16-14 New,3/31/98,C 7/e: 16-26 7/e: 16-36 10/15/2004 Single MC A4 10/15/2004 Single MC B4 10/15/2004 Single MC C4 10/15/2004 Single MC D4 10/15/2004 Single MC E4 6/e: 16-28 10/16/2004 Single MC F4 10/16/2004 Single MC G4 10/16/2004 Single MC

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Origin Authors Authors Authors E.N. Authors Authors E.N. E.N. E.N. E.N. E.N. Authors E.N. E.N. E.N.

CMA/CPA origin

x x

x x x x

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16 1720 2122 2324 2526 2728 2930 3132 3334 3536 3738 39 40 41 42 43 44 45 46 47 48

M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Multipart M/C Problem Problem Problem Problem Problem Problem Problem Problem Problem Problem

E M M E E E E E E E E M E E E E M E E E E x x x x x x x x x x x

x x x

H4 10/16/2004 Single MC I4 6/e: 16-17 to 20 6/e: 16-59 to 60 10/15/2004 Multi MC A4 10/15/2004 Multi MC B4 10/15/2004 Multi MC C4 10/15/2004 Multi MC D4

E.N. Authors Authors E.N. E.N. E.N. E.N. E.N. E.N. E.N. E.N. Authors E.N. E.N. E.N. E.N. Authors E.N. E.N. E.N. E.N.

x x x x x

10/16/2004 Multi MC E4 10/16/2004 Multi MC F4 10/16/2004 Multi MC G4 10/16/2004 Multi MC H4 6/e: 16-2 10/15/2004 Problem A4 10/15/2004 Problem B4 10/15/2004 Problem C4 10/15/2004 Problem D4 7/e: 16-53 clone 10/16/2004 Problem E4 10/16/2004 Problem F4 10/16/2004 Problem G4 10/16/2004 Problem H4

x x x x x

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Chapter 04 - Appendix B Service Department Allocations

Chapter 04 Appendix B Service Department Allocations

1. The step-down method allocates more total cost to operating departments than does the direct method. True False

2. The step-down method of allocation is more accurate than the direct method. True False

3. The direct allocation method ignores the cost of interdepartmental services provided among service departments and allocates all costs directly to operating departments. True False

4. Under the direct method of allocating service department costs, reciprocal services provided among service departments are ignored. True False

Multiple Choice Questions

5. Gatlin Company has several service departments that provide services for each other as well as for operating departments within the company. The method that would be least accurate in allocating the company's service department costs would be: A. by the step-down method. B. by the direct method. C. by cost behavior. D. by the reciprocal method.

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6. The step-down method of allocating service department costs: A. is a less accurate method of allocation than the direct method. B. can't be used when a company has more than two service departments. C. is a simpler allocation method than the direct method. D. ignores some interdepartmental services.

7. Hidden 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 Wholesaling.

Administrative costs are allocated on the basis of employee hours and Facilities costs are allocated on the basis of space occupied. The total Wholesaling Department cost after the allocations of service department costs is closest to: A. $389,876 B. $378,900 C. $392,340 D. $392,544

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Chapter 04 - Appendix B Service Department Allocations

8. Balthazar Clinic uses the direct method to allocate service department costs to operating departments. The clinic has two service departments, Personnel and Support, and two operating departments, Prenatal and Pediatrics.

Personnel Department costs are allocated on the basis of employee hours and Support Department costs are allocated on the basis of space occupied in square feet. The total Pediatrics Department cost after the allocations of service department costs is closest to: A. $304,880 B. $310,281 C. $312,290 D. $312,554

9. Amorim 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: A. $34,944 B. $145,367 C. $31,329 D. $25,774

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10. The direct method is used by Colquitt 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: A. $516,249 B. $522,964 C. $520,389 D. $510,887

11. Silton Surgical Hospital uses the direct method to allocate service department costs to operating departments. The hospital has two service departments, Telecommunications and Administration, and two operating departments, Surgery and Recovery.

Telecommunications Department costs are allocated on the basis of the number of telecommunications ports in departments and Administration Department costs are allocated on the basis of employees. The total Surgery Department cost after service department allocations is closest to: A. $278,389 B. $276,783 C. $274,208 D. $269,621

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12. Rich Company has a Custodial Services department which services the company's Maintenance department and two operating departments, Machinery and Milling. Costs of Custodial Services are allocated to the other departments on the basis of square footage of space occupied. The amount of space occupied by each department is given below:

Budgeted costs in Custodial Services amount to $86,400. The amount of Custodial Services cost allocated to Maintenance under the step-down method would be: A. $5,184 B. $5,400 C. $0 D. $5,760

13. Bankert Corporation uses the step-down method to allocate service department costs to operating departments. The company has two service departments, General Management and Physical Plant, and two operating departments, Sales and After-Sales. Data concerning those departments follow:

General Management 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 After-Sales Department cost after allocations is closest to: A. $307,594 B. $300,100 C. $310,240 D. $310,376

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14. Poteete, Inc., allocates service department costs to operating departments using the stepdown 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: A. $539,189 B. $526,180 C. $538,930 D. $537,376

15. Diprima 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 Pediatric. 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 Pediatric Department cost after allocations is closest to: A. $233,732 B. $238,715 C. $238,298 D. $205,318

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16. Stazenski 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: A. $435,029 B. $390,920 C. $434,832 D. $423,486

The Uinta Company has two service departments and two operating departments. The following data are available from last year:

The costs of service departments 1 and 2 are allocated on the basis of number of transactions and square feet occupied respectively. No distinction is made between fixed and variable costs.

17. Assuming that Uinta allocates service department costs by the direct method, the total overhead costs allocated from Department 1 to Department X are: A. $18,000 B. $25,200 C. $42,000 D. $29,400

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18. Assuming that Uinta allocates service department costs by the direct method, the total overhead costs allocated from Department 2 to Department Y are: A. $22,400 B. $16,800 C. $42,000 D. $14,000

19. Assume that Uinta allocates service department costs by the step-down method, starting with Department 1. The total overhead costs allocated from Department 1 to Department X are: A. $12,115 B. $21,000 C. $24,000 D. $33,600

20. Assume that Uinta allocates service department costs by the step-down method, starting with Department 1. The total overhead costs allocated from Department 2 to Department Y are: A. $18,000 B. $24,000 C. $21,000 D. $25,200

The Grand Company has budgeted departmental costs and operating activity in its four departments for the coming year as follows:

The company does not distinguish between fixed and variable service department costs. Custodial costs are allocated on the basis of square feet occupied. Repair costs are allocated on the basis of the number of repair requests.

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21. Assume Grand uses the direct allocation method. After all allocations, how much of the company's total overhead cost will be charged to the Production Department for the coming year? A. $43,400 B. $46,200 C. $45,941 D. $41,728

22. Assume Grand uses the step-down allocation method with Custodial costs allocated first. After all allocations, how much of the company's total overhead cost will be charged to the company's Finishing Department for the coming year? A. $57,274 B. $55,184 C. $59,777 D. $56,854

Reddin Corporation has two service departments, Administrative and Facilities, and two operating departments, Assembly and Customer Solutions.

The company uses the direct method to allocate service department costs to operating departments. Administrative costs are allocated on the basis of employee hours and Facilities costs are allocated on the basis of space occupied.

23. The total amount of Administrative Department cost allocated to the Assembly Department is closest to: A. $20,991 B. $29,484 C. $23,460 D. $23,009

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24. The total Customer Solutions Department cost after the allocations of service department costs is closest to: A. $674,310 B. $686,040 C. $683,705 D. $686,473

President Clinic has two service departments, Administrative and Support, and two operating departments, Adult Medicine and Pediatrics.

The clinic uses the direct method to allocate service department costs to operating departments. Administrative Department costs are allocated on the basis of employee hours and Support Department costs are allocated on the basis of space occupied in square feet.

25. The total amount of Administrative Department cost allocated to the Adult Medicine Department is closest to: A. $28,368 B. $31,096 C. $43,235 D. $32,340

26. The total Pediatrics Department cost after the allocations of service department costs is closest to: A. $475,220 B. $491,880 C. $488,839 D. $491,683

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Brannigan 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.

27. The total amount of Information Technology Department cost allocated to the two operating departments is closest to: A. $141,772 B. $26,749 C. $30,820 D. $22,503

28. The total Fabrication Department cost after service department allocations is closest to: A. $604,655 B. $606,735 C. $599,122 D. $602,460

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Enzor Surgical Hospital uses the direct method to allocate service department costs to operating departments. The hospital has two service departments, Information Technology and Administration, and two operating departments, Surgery and Recovery.

Information Technology Department costs are allocated on the basis of computer workstations and Administration Department costs are allocated on the basis of employees.

29. The total amount of Information Technology Department cost allocated to the two operating departments is closest to: A. $23,841 B. $29,414 C. $113,244 D. $19,695

30. The total Surgery Department cost after service department allocations is closest to: A. $500,818 B. $498,775 C. $494,416 D. $503,713

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Goodland Corporation uses the step-down method to allocate service department costs to operating departments. The company has two service departments, Service Department A and Service Department B, and two operating departments, Operating Department X and Operating Department Y. Data concerning those departments follow:

Service Department A costs are allocated first on the basis of allocation base A and Service Department B costs are allocated second on the basis of allocation base B.

31. In the first step of the allocation, the amount of Service Department A cost allocated to the Operating Department X is closest to: A. $9,760 B. $20,608 C. $19,800 D. $18,032

32. The total Operating Department Y cost after allocations is closest to: A. $423,352 B. $425,820 C. $416,220 D. $425,966

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Ponce Corporation, a manufacturer, uses the step-down method to allocate service department costs to operating departments. The company has two service departments, Administration and Facilities, and two operating departments, Assembly and Finishing. Data concerning those departments follow:

Administration Department costs are allocated first on the basis of labor hours and Facilities Department costs are allocated second on the basis of space occupied.

33. In the first step of the allocation, the amount of Administration Department cost allocated to the Assembly Department is closest to: A. $19,515 B. $22,370 C. $21,330 D. $10,040

34. The total Finishing Department cost after allocations is closest to: A. $515,170 B. $510,933 C. $504,110 D. $515,379

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Duda 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 Geriatric Medicine. 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.

35. In the first step of the allocation, the amount of Personnel Department cost allocated to the Family Medicine Department is closest to: A. $17,804 B. $20,296 C. $37,408 D. $18,700

36. The total Geriatric Medicine Department cost after allocations is closest to: A. $163,616 B. $188,179 C. $194,726 D. $194,717

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Deardurff Legal Services, LLC, uses the step-down method to allocate service department costs to operating departments. The firm has two service departments, Personnel and Information Technology (IT), and two operating departments, Family Law and Corporate Law. 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.

37. In the first step of the allocation, the amount of Personnel Department cost allocated to the Family Law Department is closest to: A. $20,121 B. $13,937 C. $15,637 D. $14,430

38. The total Corporate Law Department cost after allocations is closest to: A. $417,451 B. $417,540 C. $410,562 D. $394,660

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Essay Questions

39. Konosh Medical Clinic has two service departments, Building Services and Energy, and three operating departments, Pediatrics, Geriatrics, and Surgery. Konosh allocates the cost of Building Services on square footage and Energy on patient days. No distinction is made between variable and fixed costs. Budgeted operating data for last year follow:

Required: a. Prepare a schedule to allocate service department costs to operating departments by the direct method. (Round all dollar amounts to the nearest whole dollar.) b. Prepare a schedule to allocate service department costs to operating departments by the step-down method, allocating Building Services first. (Round all dollar amounts to the nearest whole dollar.)

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40. Voltaire 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.

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41. Mask 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.

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42. The direct method is used by Savela Clinic to allocate its service department costs to its operating departments. Data concerning those departments follow:

Information Technology costs are allocated on the basis of computers and Personnel costs are allocated on the basis of employees. Required: Allocate the service department costs to the operating departments using the direct method.

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43. Essex Consultancy uses the direct method to allocate its service department costs to its operating departments. The company has two service departments, Information Technology and Administration, and two operating departments, Corporate Practice and Government Practice. Data concerning those departments follow:

Information Technology Department costs are allocated on the basis of computers and Administration Department costs are allocated on the basis of employees. Required: Allocate the service department costs to the operating departments using the direct method.

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44. Flinders Company has two service departments, Factory Administration and Maintenance, and two operating departments. Selected information relating to these departments is given below:

The company allocates service department costs by the step-down method. Factory Administration costs are allocated first on the basis of number of employees, and then Maintenance costs are allocated on the basis of total labor hours. Required: Prepare a schedule showing the allocation of service department costs to other departments.

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45. Vitro Corporation has two service departments, Service Department A and Service Department B, and two operating departments, Operating Department X and Operating Department Y.

The company uses the step-down method to allocate service department costs to operating departments. Service Department A costs are allocated first on the basis of allocation base A and Service Department B costs are allocated second on the basis of allocation base B. Required: Allocate the service department costs to the operating departments using the step-down method.

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46. Sobczynski Corporation uses the step-down method to allocate service department costs to operating departments. The company has two service departments, Administration and Facilities, and two operating departments, Assembly and Finishing.

Administration Department costs are allocated first on the basis of employee time and Facilities Department costs are allocated second on the basis of space occupied. Required: Allocate the service department costs to the operating departments using the step-down method.

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47. Grahe 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.

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48. Chrisler Natal Clinic uses the step-down method to allocate service department costs to operating departments. The clinic has two service departments, Administration and Information Technology (IT), and two operating departments, Prenatal Care and Postnatal 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.

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Chapter 04 Appendix B Service Department Allocations Answer Key

True / False Questions

1. The step-down method allocates more total cost to operating departments than does the direct method. FALSE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Comprehension Learning Objective: 04B-10 Allocate service department costs to operating departments using the direct method Learning Objective: 04B-11 Allocate service department costs to operating departments using the step-down method Level: Medium

2. The step-down method of allocation is more accurate than the direct method. TRUE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Knowledge Learning Objective: 04B-10 Allocate service department costs to operating departments using the direct method Learning Objective: 04B-11 Allocate service department costs to operating departments using the step-down method Level: Easy

3. The direct allocation method ignores the cost of interdepartmental services provided among service departments and allocates all costs directly to operating departments. TRUE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Knowledge Learning Objective: 04B-10 Allocate service department costs to operating departments using the direct method Level: Easy

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4. Under the direct method of allocating service department costs, reciprocal services provided among service departments are ignored. TRUE

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Knowledge Learning Objective: 04B-10 Allocate service department costs to operating departments using the direct method Level: Easy

Multiple Choice Questions

5. Gatlin Company has several service departments that provide services for each other as well as for operating departments within the company. The method that would be least accurate in allocating the company's service department costs would be: A. by the step-down method. B. by the direct method. C. by cost behavior. D. by the reciprocal method.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Knowledge Learning Objective: 04B-10 Allocate service department costs to operating departments using the direct method Learning Objective: 04B-11 Allocate service department costs to operating departments using the step-down method Level: Easy

6. The step-down method of allocating service department costs: A. is a less accurate method of allocation than the direct method. B. can't be used when a company has more than two service departments. C. is a simpler allocation method than the direct method. D. ignores some interdepartmental services.

AACSB: Reflective Thinking AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Comprehension Learning Objective: 04B-10 Allocate service department costs to operating departments using the direct method Learning Objective: 04B-11 Allocate service department costs to operating departments using the step-down method Level: Medium

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7. Hidden 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 Wholesaling.

Administrative costs are allocated on the basis of employee hours and Facilities costs are allocated on the basis of space occupied. The total Wholesaling Department cost after the allocations of service department costs is closest to: A. $389,876 B. $378,900 C. $392,340 D. $392,544 Allocation base for Administrative costs = 26,000 + 14,000 = 40,000 Allocation base for Facilities costs = 33,000 + 6,000 = 39,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Application Learning Objective: 04B-10 Allocate service department costs to operating departments using the direct method Level: Easy

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8. Balthazar Clinic uses the direct method to allocate service department costs to operating departments. The clinic has two service departments, Personnel and Support, and two operating departments, Prenatal and Pediatrics.

Personnel Department costs are allocated on the basis of employee hours and Support Department costs are allocated on the basis of space occupied in square feet. The total Pediatrics Department cost after the allocations of service department costs is closest to: A. $304,880 B. $310,281 C. $312,290 D. $312,554 Allocation base for Personnel costs = 23,000 + 13,000 = 36,000 Allocation base for Support costs = 37,000 + 6,000 = 43,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Application Learning Objective: 04B-10 Allocate service department costs to operating departments using the direct method Level: Easy

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9. Amorim 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: A. $34,944 B. $145,367 C. $31,329 D. $25,774 Data Processing costs to be allocated = $34,944

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Application Learning Objective: 04B-10 Allocate service department costs to operating departments using the direct method Level: Easy

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10. The direct method is used by Colquitt 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: A. $516,249 B. $522,964 C. $520,389 D. $510,887 Allocation base for Information Technology costs = 59 + 38 = 97 Allocation base for Facilities costs = 106 + 33 = 139

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Application Learning Objective: 04B-10 Allocate service department costs to operating departments using the direct method Level: Easy

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11. Silton Surgical Hospital uses the direct method to allocate service department costs to operating departments. The hospital has two service departments, Telecommunications and Administration, and two operating departments, Surgery and Recovery.

Telecommunications Department costs are allocated on the basis of the number of telecommunications ports in departments and Administration Department costs are allocated on the basis of employees. The total Surgery Department cost after service department allocations is closest to: A. $278,389 B. $276,783 C. $274,208 D. $269,621 Allocation base for Telecommunication costs = 49 + 49 = 98 Allocation base for Administration costs = 49 + 48 = 97

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Application Learning Objective: 04B-10 Allocate service department costs to operating departments using the direct method Level: Easy

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12. Rich Company has a Custodial Services department which services the company's Maintenance department and two operating departments, Machinery and Milling. Costs of Custodial Services are allocated to the other departments on the basis of square footage of space occupied. The amount of space occupied by each department is given below:

Budgeted costs in Custodial Services amount to $86,400. The amount of Custodial Services cost allocated to Maintenance under the step-down method would be: A. $5,184 B. $5,400 C. $0 D. $5,760 Allocation rate for Custodial services costs = Cost to be allocated Allocation base = $86,400 (9,000 square feet + 45,000 square feet + 90,000 square feet) =$0.60 per square foot Custodial services department cost allocated to Maintenance = $0.60 per square foot 9,000 square feet = $5,400

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Application Learning Objective: 04B-11 Allocate service department costs to operating departments using the step-down method Level: Medium

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13. Bankert Corporation uses the step-down method to allocate service department costs to operating departments. The company has two service departments, General Management and Physical Plant, and two operating departments, Sales and After-Sales. Data concerning those departments follow:

General Management 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 After-Sales Department cost after allocations is closest to: A. $307,594 B. $300,100 C. $310,240 D. $310,376 Allocation base for General Management costs = 2,000 + 33,000 + 13,000 = 48,000 Allocation base for Physical Plant costs = 33,000 + 8,000 = 41,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Application Learning Objective: 04B-11 Allocate service department costs to operating departments using the step-down method Level: Easy

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14. Poteete, Inc., allocates service department costs to operating departments using the stepdown 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: A. $539,189 B. $526,180 C. $538,930 D. $537,376 Allocation base for Administration costs = 1,000 + 26,000 + 17,000 = 44,000 Allocation base for Physical Plant costs = 38,000 + 2,000 = 40,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Application Learning Objective: 04B-11 Allocate service department costs to operating departments using the step-down method Level: Easy

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15. Diprima 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 Pediatric. 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 Pediatric Department cost after allocations is closest to: A. $233,732 B. $238,715 C. $238,298 D. $205,318 Allocation base for Personnel costs = 20 + 137 + 170 = 327 Allocation base for IT costs = 129 + 104 = 233

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Application Learning Objective: 04B-11 Allocate service department costs to operating departments using the step-down method Level: Easy

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16. Stazenski 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: A. $435,029 B. $390,920 C. $434,832 D. $423,486 Allocation base for Administration costs = 26 + 115 + 169 = 310 Allocation base for IT costs = 100 + 166 = 266

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Application Learning Objective: 04B-11 Allocate service department costs to operating departments using the step-down method Level: Easy

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Chapter 04 - Appendix B Service Department Allocations

The Uinta Company has two service departments and two operating departments. The following data are available from last year:

The costs of service departments 1 and 2 are allocated on the basis of number of transactions and square feet occupied respectively. No distinction is made between fixed and variable costs.

17. Assuming that Uinta allocates service department costs by the direct method, the total overhead costs allocated from Department 1 to Department X are: A. $18,000 B. $25,200 C. $42,000 D. $29,400 Allocation base for Service Department 1 costs = 14,000 + 16,000 = 30,000 Allocation base for Service Department 2 costs = 3,000 + 2,000 = 5,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Application Learning Objective: 04B-10 Allocate service department costs to operating departments using the direct method Level: Medium

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Chapter 04 - Appendix B Service Department Allocations

18. Assuming that Uinta allocates service department costs by the direct method, the total overhead costs allocated from Department 2 to Department Y are: A. $22,400 B. $16,800 C. $42,000 D. $14,000 Allocation base for Service Department 1 costs = 14,000 + 16,000 = 30,000 Allocation base for Service Department 2 costs = 3,000 + 2,000 = 5,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Application Learning Objective: 04B-10 Allocate service department costs to operating departments using the direct method Level: Medium

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Chapter 04 - Appendix B Service Department Allocations

19. Assume that Uinta allocates service department costs by the step-down method, starting with Department 1. The total overhead costs allocated from Department 1 to Department X are: A. $12,115 B. $21,000 C. $24,000 D. $33,600 Allocation base for Service Department 1 costs = 12,000 + 14,000 + 16,000 = 42,000 Allocation base for Service Department 2 costs = 3,000 + 2,000 = 5,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Application Learning Objective: 04B-11 Allocate service department costs to operating departments using the step-down method Level: Medium

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Chapter 04 - Appendix B Service Department Allocations

20. Assume that Uinta allocates service department costs by the step-down method, starting with Department 1. The total overhead costs allocated from Department 2 to Department Y are: A. $18,000 B. $24,000 C. $21,000 D. $25,200 Allocation base for Service Department 1 costs = 12,000 + 14,000 + 16,000 = 42,000 Allocation base for Service Department 2 costs = 3,000 + 2,000 = 5,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Application Learning Objective: 04B-11 Allocate service department costs to operating departments using the step-down method Level: Medium

The Grand Company has budgeted departmental costs and operating activity in its four departments for the coming year as follows:

The company does not distinguish between fixed and variable service department costs. Custodial costs are allocated on the basis of square feet occupied. Repair costs are allocated on the basis of the number of repair requests.

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21. Assume Grand uses the direct allocation method. After all allocations, how much of the company's total overhead cost will be charged to the Production Department for the coming year? A. $43,400 B. $46,200 C. $45,941 D. $41,728 Allocation base for Custodial costs = 1,200 + 3,600 = 4,800 Allocation base for Repair costs = 220 + 100 = 320

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Application Learning Objective: 04B-10 Allocate service department costs to operating departments using the direct method Level: Medium

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Chapter 04 - Appendix B Service Department Allocations

22. Assume Grand uses the step-down allocation method with Custodial costs allocated first. After all allocations, how much of the company's total overhead cost will be charged to the company's Finishing Department for the coming year? A. $57,274 B. $55,184 C. $59,777 D. $56,854 Allocation base for Custodial costs = 200 + 1,200 + 3,600 = 5,000 Allocation base for Repair costs = 220 + 100 = 320

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Application Learning Objective: 04B-11 Allocate service department costs to operating departments using the step-down method Level: Medium

Reddin Corporation has two service departments, Administrative and Facilities, and two operating departments, Assembly and Customer Solutions.

The company uses the direct method to allocate service department costs to operating departments. Administrative costs are allocated on the basis of employee hours and Facilities costs are allocated on the basis of space occupied.

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23. The total amount of Administrative Department cost allocated to the Assembly Department is closest to: A. $20,991 B. $29,484 C. $23,460 D. $23,009 Allocation base for Administrative costs = 34,000 + 17,000 = 51,000 Allocation base for Facilities costs = 31,000 + 6,000 = 37,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Application Learning Objective: 04B-10 Allocate service department costs to operating departments using the direct method Level: Easy

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Chapter 04 - Appendix B Service Department Allocations

24. The total Customer Solutions Department cost after the allocations of service department costs is closest to: A. $674,310 B. $686,040 C. $683,705 D. $686,473 Allocation base for Administrative costs = 34,000 + 17,000 = 51,000 Allocation base for Facilities costs = 31,000 + 6,000 = 37,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Application Learning Objective: 04B-10 Allocate service department costs to operating departments using the direct method Level: Easy

President Clinic has two service departments, Administrative and Support, and two operating departments, Adult Medicine and Pediatrics.

The clinic uses the direct method to allocate service department costs to operating departments. Administrative Department costs are allocated on the basis of employee hours and Support Department costs are allocated on the basis of space occupied in square feet.

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25. The total amount of Administrative Department cost allocated to the Adult Medicine Department is closest to: A. $28,368 B. $31,096 C. $43,235 D. $32,340 Allocation base for Administrative costs = 33,000 + 17,000 = 50,000 Allocation base for Support costs = 30,000 + 4,000 = 34,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Application Learning Objective: 04B-10 Allocate service department costs to operating departments using the direct method Level: Easy

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Chapter 04 - Appendix B Service Department Allocations

26. The total Pediatrics Department cost after the allocations of service department costs is closest to: A. $475,220 B. $491,880 C. $488,839 D. $491,683 Allocation base for Administrative costs = 33,000 + 17,000 = 50,000 Allocation base for Support costs = 30,000 + 4,000 = 34,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Application Learning Objective: 04B-10 Allocate service department costs to operating departments using the direct method Level: Easy

Brannigan 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.

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27. The total amount of Information Technology Department cost allocated to the two operating departments is closest to: A. $141,772 B. $26,749 C. $30,820 D. $22,503 Information Technology costs to be allocated = $30,820

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Application Learning Objective: 04B-10 Allocate service department costs to operating departments using the direct method Level: Easy

28. The total Fabrication Department cost after service department allocations is closest to: A. $604,655 B. $606,735 C. $599,122 D. $602,460 Allocation base for Information Technology costs = 47 + 45 = 92 Allocation base for Support costs = 70 + 41 = 111

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Application Learning Objective: 04B-10 Allocate service department costs to operating departments using the direct method Level: Easy

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Enzor Surgical Hospital uses the direct method to allocate service department costs to operating departments. The hospital has two service departments, Information Technology and Administration, and two operating departments, Surgery and Recovery.

Information Technology Department costs are allocated on the basis of computer workstations and Administration Department costs are allocated on the basis of employees.

29. The total amount of Information Technology Department cost allocated to the two operating departments is closest to: A. $23,841 B. $29,414 C. $113,244 D. $19,695 Information Technology costs to be allocated = $29,414

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Application Learning Objective: 04B-10 Allocate service department costs to operating departments using the direct method Level: Easy

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30. The total Surgery Department cost after service department allocations is closest to: A. $500,818 B. $498,775 C. $494,416 D. $503,713 Allocation base for Information Technology costs = 40 + 37 = 77 Allocation base for Administration costs = 61 + 32 = 93

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Application Learning Objective: 04B-10 Allocate service department costs to operating departments using the direct method Level: Easy

Goodland Corporation uses the step-down method to allocate service department costs to operating departments. The company has two service departments, Service Department A and Service Department B, and two operating departments, Operating Department X and Operating Department Y. Data concerning those departments follow:

Service Department A costs are allocated first on the basis of allocation base A and Service Department B costs are allocated second on the basis of allocation base B.

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31. In the first step of the allocation, the amount of Service Department A cost allocated to the Operating Department X is closest to: A. $9,760 B. $20,608 C. $19,800 D. $18,032 Allocation base for Service Department A costs = 2,000 + 33,000 + 16,000 = 51,000 Allocation base for Service Department B costs = 31,000 + 8,000 = 39,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Application Learning Objective: 04B-11 Allocate service department costs to operating departments using the step-down method Level: Easy

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32. The total Operating Department Y cost after allocations is closest to: A. $423,352 B. $425,820 C. $416,220 D. $425,966 Allocation base for Service Department A costs = 2,000 + 33,000 + 16,000 = 51,000 Allocation base for Service Department B costs = 31,000 + 8,000 = 39,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Application Learning Objective: 04B-11 Allocate service department costs to operating departments using the step-down method Level: Easy

Ponce Corporation, a manufacturer, uses the step-down method to allocate service department costs to operating departments. The company has two service departments, Administration and Facilities, and two operating departments, Assembly and Finishing. Data concerning those departments follow:

Administration Department costs are allocated first on the basis of labor hours and Facilities Department costs are allocated second on the basis of space occupied.

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33. In the first step of the allocation, the amount of Administration Department cost allocated to the Assembly Department is closest to: A. $19,515 B. $22,370 C. $21,330 D. $10,040 Allocation base for Administration costs = 2,000 + 27,000 + 14,000 = 43,000 Allocation base for Facilities costs = 34,000 + 9,000 = 43,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Application Learning Objective: 04B-11 Allocate service department costs to operating departments using the step-down method Level: Easy

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34. The total Finishing Department cost after allocations is closest to: A. $515,170 B. $510,933 C. $504,110 D. $515,379 Allocation base for Administration costs = 2,000 + 27,000 + 14,000 = 43,000 Allocation base for Facilities costs = 34,000 + 9,000 = 43,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Application Learning Objective: 04B-11 Allocate service department costs to operating departments using the step-down method Level: Easy

Duda 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 Geriatric Medicine. 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.

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35. In the first step of the allocation, the amount of Personnel Department cost allocated to the Family Medicine Department is closest to: A. $17,804 B. $20,296 C. $37,408 D. $18,700 Allocation base for Personnel costs = 25 + 110 + 183 = 318 Allocation base for IT costs = 81 + 136 = 217

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Application Learning Objective: 04B-11 Allocate service department costs to operating departments using the step-down method Level: Easy

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36. The total Geriatric Medicine Department cost after allocations is closest to: A. $163,616 B. $188,179 C. $194,726 D. $194,717 Allocation base for Personnel costs = 25 + 110 + 183 = 318 Allocation base for IT costs = 81 + 136 = 217

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Application Learning Objective: 04B-11 Allocate service department costs to operating departments using the step-down method Level: Easy

Deardurff Legal Services, LLC, uses the step-down method to allocate service department costs to operating departments. The firm has two service departments, Personnel and Information Technology (IT), and two operating departments, Family Law and Corporate Law. 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.

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37. In the first step of the allocation, the amount of Personnel Department cost allocated to the Family Law Department is closest to: A. $20,121 B. $13,937 C. $15,637 D. $14,430 Allocation base for Personnel costs = 24 + 111 + 176 = 311 Allocation base for IT costs = 91 + 163 = 254

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Application Learning Objective: 04B-11 Allocate service department costs to operating departments using the step-down method Level: Easy

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38. The total Corporate Law Department cost after allocations is closest to: A. $417,451 B. $417,540 C. $410,562 D. $394,660 Allocation base for Personnel costs = 24 + 111 + 176 = 311 Allocation base for IT costs = 91 + 163 = 254

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Application Learning Objective: 04B-11 Allocate service department costs to operating departments using the step-down method Level: Easy

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Essay Questions

39. Konosh Medical Clinic has two service departments, Building Services and Energy, and three operating departments, Pediatrics, Geriatrics, and Surgery. Konosh allocates the cost of Building Services on square footage and Energy on patient days. No distinction is made between variable and fixed costs. Budgeted operating data for last year follow:

Required: a. Prepare a schedule to allocate service department costs to operating departments by the direct method. (Round all dollar amounts to the nearest whole dollar.) b. Prepare a schedule to allocate service department costs to operating departments by the step-down method, allocating Building Services first. (Round all dollar amounts to the nearest whole dollar.)

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a. Direct Method: Allocation base for Building Services costs = 6,000 + 18,000 + 12,000 = 36,000 Allocation base for Energy costs = 5,500 + 7,700 + 8,800 = 22,000

b. Step Method: Allocation base for Building Services costs = 4,000 + 6,000 + 18,000 + 12,000 = 40,000 Allocation base for Energy costs = 5,500 + 7,700 + 8,800 = 22,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Application Learning Objective: 04B-10 Allocate service department costs to operating departments using the direct method Learning Objective: 04B-11 Allocate service department costs to operating departments using the step-down method Level: Medium

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40. Voltaire 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. Allocation base for Administrative costs = 30,000 + 18,000 = 48,000 Allocation base for Facilities costs = 36,000 + 3,000 = 39,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Application Learning Objective: 04B-10 Allocate service department costs to operating departments using the direct method Level: Easy

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41. Mask 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. Allocation base for Service Department A costs = 21,000 + 14,000 = 35,000 Allocation base for Service Department B costs = 38,000 + 3,000 = 41,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Application Learning Objective: 04B-10 Allocate service department costs to operating departments using the direct method Level: Easy

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42. The direct method is used by Savela Clinic to allocate its service department costs to its operating departments. Data concerning those departments follow:

Information Technology costs are allocated on the basis of computers and Personnel costs are allocated on the basis of employees. Required: Allocate the service department costs to the operating departments using the direct method. Allocation base for Information Technology costs = 55 + 38 = 93 Allocation base for Personnel costs = 103 + 37 = 140

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Application Learning Objective: 04B-10 Allocate service department costs to operating departments using the direct method Level: Easy

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43. Essex Consultancy uses the direct method to allocate its service department costs to its operating departments. The company has two service departments, Information Technology and Administration, and two operating departments, Corporate Practice and Government Practice. Data concerning those departments follow:

Information Technology Department costs are allocated on the basis of computers and Administration Department costs are allocated on the basis of employees. Required: Allocate the service department costs to the operating departments using the direct method. Allocation base for Information Technology costs = 49 + 49 = 98 Allocation base for Administration costs = 78 + 41 = 119

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Application Learning Objective: 04B-10 Allocate service department costs to operating departments using the direct method Level: Easy

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44. Flinders Company has two service departments, Factory Administration and Maintenance, and two operating departments. Selected information relating to these departments is given below:

The company allocates service department costs by the step-down method. Factory Administration costs are allocated first on the basis of number of employees, and then Maintenance costs are allocated on the basis of total labor hours. Required: Prepare a schedule showing the allocation of service department costs to other departments. Allocation base for Factory Administration costs = 5 + 40 + 60 = 105 Allocation base for Maintenance costs = 80,000 + 120,000 = 200,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Application Learning Objective: 04B-11 Allocate service department costs to operating departments using the step-down method Level: Medium

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45. Vitro Corporation has two service departments, Service Department A and Service Department B, and two operating departments, Operating Department X and Operating Department Y.

The company uses the step-down method to allocate service department costs to operating departments. Service Department A costs are allocated first on the basis of allocation base A and Service Department B costs are allocated second on the basis of allocation base B. Required: Allocate the service department costs to the operating departments using the step-down method. Allocation base for Service Department A costs = 1,000 + 23,000 + 19,000 = 43,000 Allocation base for Service Department B costs = 33,000 + 1,000 = 34,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Application Learning Objective: 04B-11 Allocate service department costs to operating departments using the step-down method Level: Easy

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46. Sobczynski Corporation uses the step-down method to allocate service department costs to operating departments. The company has two service departments, Administration and Facilities, and two operating departments, Assembly and Finishing.

Administration Department costs are allocated first on the basis of employee time and Facilities Department costs are allocated second on the basis of space occupied. Required: Allocate the service department costs to the operating departments using the step-down method. Allocation base for Administration Department costs = 1,000 + 30,000 + 16,000 = 47,000 Allocation base for Facilities Department costs = 33,000 + 7,000 = 40,000

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Application Learning Objective: 04B-11 Allocate service department costs to operating departments using the step-down method Level: Easy

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47. Grahe 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. Allocation base for Administration Department costs = 4 + 180 + 87 = 271 Allocation base for IT Department costs = 72 + 60 = 132

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Application Learning Objective: 04B-11 Allocate service department costs to operating departments using the step-down method Level: Easy

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Chapter 04 - Appendix B Service Department Allocations

48. Chrisler Natal Clinic uses the step-down method to allocate service department costs to operating departments. The clinic has two service departments, Administration and Information Technology (IT), and two operating departments, Prenatal Care and Postnatal 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. Allocation base for Administration Department costs = 4 + 123 + 61 = 188 Allocation base for IT Department costs = 39 + 44 = 83

AACSB: Analytic AICPA BB: Critical Thinking AICPA FN: Measurement Bloom's: Application Learning Objective: 04B-11 Allocate service department costs to operating departments using the step-down method Level: Easy

4B-72