Question
In: Accounting
P.F Steel Industries Co. uses the step method for allocating the costs of its service departments...
P.F Steel Industries Co. uses the step method for allocating the costs of its service departments to operating departments. The company has two support departments (Human Resource and Information Technology) and two operating departments (Hot Rolled Hollow Steel and Cold Rolled Hollow Steel).
P.F. Industries Co. decided to allocate Human Resource department costs based on the number of employees in each department and Information Technology costs based on the number of machine hours in each department.
Required:
a- Give a numerical example for the four departments as a given information.
|
Support Departments |
Operating Departments |
TOTAL |
|||
|
Human Resource |
Information Technology |
Hot Rolled Hollow Steel |
cold Rolled Hollow Steel |
||
|
Total department cost |
|||||
|
Number of employees |
|||||
|
Number of machine hours |
|||||
b- Then based on your given information, use the step-down method to allocate support department costs.
Allocate cost:
|
Human Resource |
|||||
|
Information Technology |
|||||
|
TOTAL |
Solutions
Expert Solution
| Requirement ‘a’ Independent data for allocation | |||||
| Support Departments | Operating Departments | TOTAL | |||
| Human Resource | Information Technology | Hot Rolled Hollow Steel | cold Rolled Hollow Steel | ||
| Total department cost | $500,000 | $212,500 | $800,000 | $750,000 | $2,262,500 |
| Number of employees | 60 | 50 | 50 | 160 | |
| Number of machine hours | 100 | 150 | 250 | 500 | |
| Requirement ‘b’: Allocation of above department cost | |||||
| Human Resource | Information Technology | Hot Rolled Hollow Steel | cold Rolled Hollow Steel | TOTAL | |
| Total department cost | $500,000 | $212,500 | $800,000 | $750,000 | $2,262,500 |
| Allocate cost: | |||||
| Human Resource | ($500,000) | $187,500 | $156,250 | $156,250 | $0 |
| [500000 x 60/160] | [500000 x 50/160] | [500000 x 50/160] | |||
| Information Technology | ($400,000) | $150,000 | $250,000 | $0 | |
| [400000 x 150/400] | [400000 x 250/400] | ||||
| TOTAL | $0 | $0 | $1,106,250 | $1,156,250 | $2,262,500 |
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