Question

Question 4-53

Use the information in the table on the previous page to allocate costs to the mission centers using the direct distribution method.

Information in the Table

		Allocation Statistics
	Direct	Purchasing:	Administration
Cost Centers	Costs ($)	Purchase Orders (%)	Total Salaries (%)
Support
Purchasing	80,000		5
Administration	40,000	15	-
Mission		-
Soup Kitchens	900,000	40	90
Counseling	300,000	45	5
Total Cost	1,320,000	100	100

Direct Distribution Method

	Soup Kitchen	Counseling	Purchasing	Administration
Operating costs	$900,000	$300,000	$80,000	$40,000
Purchasing (in ratio of 40-45)	$37,647	$ 42,353	$(80,000)
Administration (in ratio of 90.5)	$ 37,895	$ 2,105		$ (40,000)
Total	$ 975,542	$ 344,458	$ -	$ -

Question 4-54

Using the information from Problem 4-53, allocate the costs using the step-down method. Compare the results with Problem 4-53. Do they differ?

Step-down Method

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Question 4-55

Using the information from Problem 4-54, allocate the costs using the step-down method, but change the order of step-down from that used when you solved Problem 4-54. Do your results differ from those you found in Problem 4-54?

		Allocation Statistics
	Direct	Purchasing:	Administration
Cost Centers	Costs ($)	Purchase Orders (%)	Total Salaries (%)
Support
Purchasing	80,000		5
Administration	40,000	15	-
Mission		-
Soup Kitchens	900,000	40	90
Counseling	300,000	45	5
Total Cost	1,320,000	100	100

Answer 1

Question 4-54

	Service departments	Production departments	Total costs
	Support purchasing	Administration services	Soup kitchens	Counseling
Dept. costs before allocation	$80,000	$40,000	$900,000	$300,000	$1,320,000
First step	-$80,000	$12,000	$32,000	$36,000
Sub total	$0	$52,000	$932,000	$336,000
second step		-$52,000	$49,263	$2,737
Total	$0	$0	$981,263	$338,737	$1,320,000

Yes, there is a difference in the costs allocated. The total costs allocated to Soup kitchens increased and the costs allocated to Counseling decreased.

Question 4-55

	Service departments	Production departments	Total costs
	Support purchasing	Administration services	Soup kitchens	Counseling
Dept. costs before allocation	$80,000	$40,000	$900,000	$300,000	$1,320,000
First step	$2,000	-$40,000	$36,000	$2,000
Sub total	$82,000	$0	$36,000	$2,000
second step	-$82,000		$38,588	$43,412
Total	$0	$0	$974,588	$345,412	$1,320,000

Yes, there is a difference in the costs allocated. The total costs allocated to Counseling increased and the costs allocated to Soup kitchens decreased.