Question

Texas Building Services provides cleaning services for a variety of clients. The company has two producing​ departments, residential and​ commercial, and two service​departments, personnel and administrative. The company has decided to allocate all service department costs to the producing​ departments' personnel on the basis of number of employees and administrative on the basis of direct department costs. The budget for 20X2 shows the​ following:

	Personnel	Administrative	Residential	Commercial
Direct department costs	$70,000	$100,000	$240,000	$400,000
Number of employees	3	5	12	18
Direct-labor hours			24,000	36,000
Square feet cleaned			4,500,000	9,970,000

Requirement 1. Allocate service department costs using the direct method. ​(Use parentheses or a minus sign when decreasing departments by allocating costs. For amounts with a​ $0 balance, make sure to enter​ "0" in the appropriate​ cell.)

	Personnel	Administrative	Residential	Commercial
Direct department costs before allocation
Personnel
Administrative
Total costs after allocation

Requirement 2. Allocate service department costs using the​ step-down method. Personnel costs should be allocated first. ​(Use parentheses or a minus sign when decreasing departments by allocating costs. For amounts with a​ $0 balance, make sure to enter​ "0" in the appropriate​ cell.)

	Personnel	Administrative	Residential	Commercial
Direct department costs before allocation
Personnel
Administrative
Total costs after allocation

Requirement 3. Suppose the company prices by the hour in the residential department and by the square foot cleaned in commercial. Using the results of the​step-down allocations in number​ 2, (a) compute the cost of providing 1​ direct-labor hour of service in the residential department and​ (b) compute the cost of cleaning one square foot of space in the commercial department.

​(a) First determine the​ formula, then compute the cost of providing 1​ direct-labor hour of service in the residential department. ​(Round your answer to the nearest​ cent.)

	/		=	Cost per direct-labor hour
	/		=

​(b) Next, determine the​ formula, then compute the cost of cleaning one square foot of space in the commercial department. ​(Round your answer to the nearest​ cent.)

	/		=	Cost per one square foot
	/		=

Requirement 4. For each type of cost assignment made in number 2 using the​ step-down method, indicate the assignment type using the framework for cost accounting system

Allocations from the personnel to the administrative departments are__________ allocations. Allocations from the administrative to the residential and commercial operating departments are allocations.

Answer 1

1. Allocation of service department cost using direct method

	Personnel	Administrative	Residential	Commercial
Direct department costs before allocation	$70000	$100000	$240000	$400000
Personnel	-	0	$28000	$42000
Administrative	0	-	$37500	$62500
Total costs after allocation	0	0	$305500	$504500

2. Allocation of service department cost using step down method.

	Personnel	Administrative	Residential	Commercial
Direct department costs before allocation	$70000	$100000	$240000	$400000
Personnel	-	$10000	$24000	$36000
Administrative	0	0	$41250	$68750
Total costs after allocation	0	0	$305250	$504750

Note : in step down method only one service cost is allocated to both service and production department, rest of them is allocated on the basis of department. In this case Personnel Department is allocated first, administration department cost ($100000 + 10000) allocated on the basis of department.

3.

a. cost of providing 1​ direct-labor hour of service in the residential department

total cost of residential department after allocation	/	total direct labor hours	=	Cost per direct-labor hour
$305250	/	24000 hours	=	$12.718

b. cost of cleaning one square foot of space in the commercial department.

total cost of commercial department after allocation	/	total square foot cleaned	=	Cost per one square foot
$504750	/	9970000	=	$0.0506

4.

Allocations from the personnel to the administrative departments are STEP-DOWN allocations.

Allocations from the administrative to the residential and commercial operating departments are DEPARTMENT allocations.