Question

Exercise 17-17 Direct Method of Service Department Cost Allocation; Bank (LO 17-1)

Tuscaloosa National Bank has two service departments, the Human Resources (HR) Department and the Computing Department. The bank has two other departments that directly service customers, the Deposit Department and the Loan Department. The usage of the two service departments’ output for the year is as follows:

	Provider of Service
User of Service	HR				Computing
HR		—				20	%
Computing		20	%			—
Deposit		50	%			40	%
Loan		30	%			40	%

The budgeted costs in the two service departments for the year are as follows:

HR	$	162,000
Computing		231,500

Required:
Use the direct method to allocate the budgeted costs of the HR and Computing departments to the Deposit and Loan departments. (Do not round intermediate calculations.)

Answer 1

• Allocating ratios for HR between Deposits and loan

--Services shared = 50% and 30% [combined 80%]

--Ratio = 50/80 and 30/80

• Allocating ratios for Computing between Deposits and Loan

--Services shared = 40% and 40% [combined 80%]

--Ratio = 40/80 and 40/80

• Final Allocation

Department	Supplying (Service Department)		Using Department
	HR	Computing	Deposits	Loans
Direct Costs	$        162,000.00	$            231,500.00	$                            -	$                                 -
Allocation of:
HR	$      (162,000.00)		$          101,250.00 [162000 x 50/80]	$                  60,750.00 [162000 x 30/80]
Computing		$          (231,500.00)	$          115,750.00 [231500 x 40/80]	$                115,750.00 [231500 x 40/80]
Total cost after allocation have been made	$                          -	$                              -	$          217,000.00	$                176,500.00