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 | – | 28 | 51 | 21 | ||||||||
| Transactions | 32,000 | – | 19,000 | 76,000 | ||||||||
| Department direct costs | $ | 358,000 | $ | 149,000 | $ | 935,000 | $ | 3,560,000 | ||||
Required:
a. Allocate the cost of the service departments
to the operating departments using the direct method.
b. Allocate the cost of the service departments to
the operating departments using the step method. Start with
Administration.
c. Allocate the cost of the service departments to
the operating departments using the reciprocal method.
- Required A
- Required B
- Required C
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.)
required A
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required B
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| required C | |||||||||||||||||||||||||||||||
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Solutions
Expert Solution
| a | Allocation of the cost of the service departments to the operating departments using the direct method. | |||||||
| Service Departments | Operating Departments | |||||||
| Administration | Accounting | Domestic | International | |||||
| Number of Employees | 0 | 28 | 51 | 21 | ||||
| Transactions | 32000 | 0 | 19000 | 76000 | ||||
| Department Direct Cost | 3,58,000.00 | 1,49,000.00 | 9,35,000.00 | 35,60,000.00 | ||||
| Allocation of Administrative Cost (on the basisi of Employees in operating departments i.e., 51:21) | -358000 | 2,53,583.33 | 1,04,416.67 | |||||
| Allocation of Accounting Cost Cost (on the basis of transactions in operating departments i.e., 190000:76000) | -149000 | 29800 | 1,19,200.00 | |||||
| Total Cost Allocated to operating Cost | - | - | 2,83,383.33 | 2,23,616.67 | ||||
| b | Allocation of Cost Using Step Method | |||||||
| Particulars | Service Departments | Operating Departments | Total | |||||
| Administration | Accounting | Domestic | International | |||||
| Number of Employees | 0 | 28 | 51 | 21 | 100 | |||
| Transactions | 32000 | 0 | 19000 | 76000 | 127000 | |||
| Department Direct Cost | 3,58,000.00 | 1,49,000.00 | 9,35,000.00 | 35,60,000.00 | 5002000 | |||
| Allocation of Administrative Cost (on the basisi of Employee i.e., 28:51:21) | -358000 | 100240 | 182580 | 75,180.00 | ||||
| Allocation of Accounting Cost (on the basisi of Transactions i.e.,19:76) | -249240 | 49,848.00 | 199392 | |||||
| Total | - | - | 11,67,428.00 | 38,34,572.00 | 50,02,000.00 | |||
| As Administrative cost is the starting point , it will be allocated to accounting service department also.The cost od accounting department along with the cost allocated from administrative department will be only allocated to operating department as the administrating department was the starting point. | ||||||||
| c | Allocation of the cost of the service departments to the operating departments using the reciprocal method. | |||||||
| Step 1 Calculation for Finding the cost to be allocated by each Service Department | ||||||||
| Particulars | Administration | Accounting | ||||||
| Number of Employees | % | Transactions | % | |||||
| Administration | 0 | 0% | 32000 | 0.25 | ||||
| Accounting | 28 | 28% | 0 | - | ||||
| Domestic | 51 | 51% | 19000 | 0.15 | ||||
| International | 21 | 21% | 76000 | 0.60 | ||||
| 100 | 1 | 127000 | 1.00 | |||||
| So the Equation developed to calculate the Cost allocated to the Service department under the method is as follows | ||||||||
| Administrative Cost = 358000 + 25% of Accounting Cost | ||||||||
| Accounting Cost = 149000 + 28% of Accounting Cost | ||||||||
| So when we recalculate the same we will get : | ||||||||
| Accounting Cost = 149000 + 28% of (358000 + 25% of Accounting Cost) | ||||||||
| Accounting Cost = 149000 + 100240 + (.07 x Accounting Cost) | ||||||||
| So Accounting Cost (1-.07) = 249240 | ||||||||
| So Accounting Cost = 249240/.93 = 268000 | ||||||||
| Using the value of Accounting Cost in the equation for Administrating cost : | ||||||||
| Administrative Cost = 358000 + 25% x 268000 = 425000 | ||||||||
 ekkarill92 answered 1 year agoRelated SolutionsBluStar 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
–
21
46
33
Transactions
35,000
–
18,000
72,000
Department
direct costs
$
361,000
$
142,000
$
950,000
$
3,680,000
Required:
a. Allocate the cost of the service departments
to the operating...
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 – 28 36
36 Transactions 38,000 – 20,000 80,000 Department direct costs $
363,000 $ 141,000 $ 955,000 $ 3,750,000
Allocate the cost of the service departments to the operating
departments using...
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
—
25
15
60
Transactions
50,000
—
10,000
40,000
Department direct costs
$
58,000
$
24,500
$
159,750
$
597,000
BluStar estimates that the cost structure in its operations is as
follows....
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 – 30 40 30
Transactions 36,000 – 19,000 76,000
Dept direct costs $ 359,000 $ 146,000 $ 930,000
$ 3,720,000
Required:c. Allocate the cost of...
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...
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
–
26
49
25
Transactions
30,000
–
23,000
92,000
Department direct costs
$
351,000
$
146,000
$
945,000
$
3,680,000
Required:
a. Allocate the cost of the service departments
to the operating...
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
—
25
15
60
Transactions
50,000
—
10,000
40,000
Department direct costs
$
54,000
$
26,500
$
159,250
$
596,000
BluStar estimates that the cost structure in its operations is as
follows:...
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
–
21
44
35
Transactions
34,000
–
19,000
76,000
Department direct costs
$
359,000
$
144,000
$
935,000
$
3,780,000
Required:
a. Allocate the cost of the service departments
to the operating...
Andy Corp. has two service departments and two operating departments. The company allocates service departmental costs...Andy Corp. has two service departments and two operating
departments. The company allocates service departmental costs to
operating departments using the step-down method. Operating data
for these departments for last year are as follows: Service
Departments Operating Departments Personnel Maintenance Assembly
Machining Departmental costs $144,000 $84,000 $12,000 $34,000
Number of employees 35 30 90 60 Machine-hours 0 0 330 170 Personnel
costs are allocated first on the basis of number of employees and
Maintenance costs are allocated second on the...
Andy Corp. has two service departments and two operating departments. The company allocates service departmental costs...Andy Corp. has two service departments and two operating
departments. The company allocates service departmental costs to
operating departments using the step-down method. Operating data
for these departments for last year are as follows:
Service Departments
Operating Departments
Personnel
Maintenance
Assembly
Machining
Departmental costs
$144,000
$84,000
$12,000
$34,000
Number of employees
35
30
90
60
Machine-hours
0
0
210
290
Personnel costs are allocated first on the basis of number of
employees and Maintenance costs are allocated second on the...
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