Question

Given the following data for operating departments A and B prepare a schedule using the direct and step method of allocation to allocate service department costs to the operating departments

.

                                     Costs    # of employee           Square feet     

Operating dept A             1600           100                          400                  

Operating dept B             1300           100                          300                  

Maintenance                   3000           100                          300                  

Payroll                          2100           100                          300                  

For the step method begin with the payroll department

Answer 1

Direct Method:

	Service Departments		Operating Departments
	Maintenance	Payroll	A	B	Total
Cost before interdepartment cost allocations	3000	2100	1600	1300	8000
Allocation of Maintenance costs	-3000	0	1714	1286
Allocation of Payroll costs	0	-2100	1050	1050
Total costs of operating departments	0	0	4364	3636	8000

Note: In the absence of specific instructions regarding rounding off, amounts have been rounded off to the nearest whole dollar. Kindly round off as required.

Step-down Method (Allocate Payroll first)

	Service Departments		Operating Departments
	Maintenance	Payroll	A	B	Total
Cost before interdepartment cost allocations	3000	2100	1600	1300	8000
Allocation of Payroll Department costs	700	-2100	700	700
	3700	0	2300	2000	8000
Allocation of Maintenance Department costs	-3700	0	2114	1586
Total costs of operating departments	0	0	4414	3586	8000

Note: In the absence of specific instructions regarding rounding off, amounts have been rounded off to the nearest whole dollar. Kindly round off as required.