Question

Answer the following question

Alexandria general hospital has 4 departments;

	Budgeted costs	Number of employees	Square meter
The hospital	2,100,000 L.E	47 employees	4000 m2
Internal medicine	650,000 L.E	15 employees	1000 m2
Human resources	300,000 L.E	10 employees	700 m2
Surgery	980,000 L.E	14 employees	1500 m2
Building maintenance	170,000 L.E	8 employees	800 m2

Allocate the support department costs using the direct method ?

Answer 1

Solution :

	Support departments	Operating department
	Human resources A	Building maintenance B	Internal medicine C	Surgery D	Total
Budgeted costs	300,000 L.E	170,000 L.E	650,000 L.E	980,000 L.E	2,100,000 L.E
Number of employees	10 employees	8 employees	15 employees	14 employees	47 employees
Square meter	700 m2	800 m2	1000 m2	1500 m2	4000 m2

The two support departments provide service to each other as well as to operating departments. The department A’s cost is allocated on the basis of employees and department B’s cost is allocated on the basis of square feet occupied.

	Support departments	Operating department
	Human resources A	Building maintenance B	Internal medicine C	Surgery D	Total
Budgeted costs	300,000 L.E	170,000 L.E	650,000 L.E	980,000 L.E	2,100,000 L.E
Department A costs	300,000 L.E		155,172.41	68000
Department B costs		170,000 L.E	144827.58	102000
			950000	1150000	210,000

*Department A’s cost has been allocated on the basis of employees:

15 employees + 14 employees = 29 employees

Allocated to department C :, 300,000 L.E × (15/29) = 155,172.41
Allocated to department D: :, 300,000 L.E × (14/29) = 144827.58

**Department B’s cost has been allocated on the basis of spaces occupied:

1000 m² + 1500 m²=2500 m²

Allocated to department C: 170,000 L.E × (1000/2500) = 68000
Allocated to department D: 170,000 L.E × (1500/2500) = 102000