Question

In: Accounting

BluStar Company has two service departments, Administration and Accounting, and two operating departments, Domestic and International....

BluStar Company has two service departments, Administration and Accounting, and two operating departments, Domestic and International. Administration costs are allocated on the basis of employees, and Accounting costs are allocated on the basis of number of transactions. A summary of BluStar operations follows.

Administration Accounting Domestic International
Employees – 29 49 22
Transactions 36,000 – 19,000 76,000
Department direct costs $ 357,000 $ 147,000 $ 945,000 $ 3,650,000


Required:

a. Allocate the cost of the service departments to the operating departments using the direct method. (Do not round intermediate calculations. Negative amounts should be indicated by a minus sign. Round your final answers to the nearest whole dollar amounts.)


b. Allocate the cost of the service departments to the operating departments using the step method. Start with Administration.(Do not round intermediate calculations. Negative amounts should be indicated by a minus sign. Round your final answers to the nearest whole dollar amounts.)


c. Allocate the cost of the service departments to the operating departments using the reciprocal method.(Do not round intermediate calculations. Negative amounts should be indicated by a minus sign. Round your final answers to the nearest whole dollar amounts.)

Solutions

Expert Solution

Answer 1

Domestic International Administration Accounting
Operating costs $    945,000 $ 3,650,000 $         357,000 $ 147,000
Administration $    246,380 $     110,620 $       (357,000)
Accounting $      29,400 $     117,600 $(147,000)
Total $ 1,220,780 $ 3,878,220 $                    -   $             -  

Answer 2

Domestic International Administration Accounting
Operating costs $    945,000 $ 3,650,000 $         357,000 $ 147,000
Administration $    174,930 $        78,540 $       (357,000) $ 103,530
Total $ 1,119,930 $ 3,728,540 $                    -   $ 250,530
Accounting $       50,106 $     200,424 $                    -   $(250,530)
Total $ 1,170,036 $ 3,928,964 $                    -   $             -  

Answer 3

Let the total cost of Administration be x.
Let the total cost of Accounting be y.

So,

x = 357000 + 0.274809160305344y ---------Equation 1
y = 147000 + 0.29x ---------Equation 2

Now,

Solving Equation 1 and 2:
Substitute value of 'y' from equation 2 in Equation 1-
So, x = 357000 + 0.27 (147000 + 0.29x)
So, x = $ 431809.89
The total cost of Administration is $ 431809.88

Also,

Putting the value of x in equation 2-
So, y = 147000 + 0.29 * 431809.88
So, y = $ 272224.867285999
The total cost of Accounting is $ 272224.86

So,

Domestic International Administration Accounting
Operating Cost $          945,000 $       3,650,000 $         357,000 $        147,000
Administration $          211,587 $            94,998 $       (431,810) $        125,225
Total cost $       1,156,587 $       3,744,998 $         (74,810) $        272,225
Accounting $            39,483 $          157,932 $           74,810 $      (272,225)
Total cost $       1,196,070 $       3,902,930 $                    -   $                   -  

In case of any doubt, please comment.

ekkarill92 answered 2 years ago
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