Question

In: Accounting

Problem 11-49 Comparison of Allocation Methods (LO 11-2, 3, 4) BluStar Company has two service departments,...

Problem 11-49 Comparison of Allocation Methods (LO 11-2, 3, 4) 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 48 23 Transactions 35,000 – 22,000 88,000 Department direct costs $ 353,000 $ 148,000 $ 945,000 $ 3,560,000 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.) 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.) 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.)

Solutions

Expert Solution

a) Allocation of cost of service departments using the direct method (Amounts in $)

Departments Administration Accounting Domestic International
Direct Costs 353,000 148,000 945,000 3,560,000
Administration allocation (in the ratio of 48:23 no. of employees) (353,000) - 238,648 114,352
Accounting allocation (in the ratio of 22,000:88,000 no. of transactions) - (148,000) 29,600 118,400
Total cost allocated 0 0 1,213,248 3,792,752

b) Allocation of cost of service departments using the step method (Amounts in $)

Departments Administration Accounting Domestic International
Direct Costs 353,000 148,000 945,000 3,560,000
Administration allocation (in the ratio of 29:48:23 no. of employees) (353,000) 102,370 169,440 81,190
Accounting allocation (in the ratio of 22,000:88,000 no. of transactions) - (250,370) 50,074 200,296
Total cost allocated 0 0 1,164,514 3,841,486

c) Firstly we need to set up equations

Cost of Administration department (S1) = Direct costs+(Cost of Accounting department*35/145)

Cost of Accounting department (S2) = Direct costs+(Cost of Administration department*29/100)

S1 = $353,000+(S2*35/145) Equation A

S2 = $148,000+(S1*29%) Equation B

By substituting equation B into equation A

S1 = $353,000+[($148,000+S1*0.29)*35/145]

S1 = $353,000+($148,000*35/145)+(0.29*35/145*S1)

S1 = $353,000+$35,724.14+0.07S1

S1 - 0.07S1 = $388,724.14

0.93S1 = $388,724.14

S1 = $388,724.14/0.93 = $417,983

S2 = $148,000+($417,983*0.29) = $269,215

Allocation of cost of service departments using the step method (Amounts in $)

Departments Administration Accounting Domestic International
Direct Costs 353,000 148,000 945,000 3,560,000
Administration allocation (in the ratio of 29:48:23 no. of employees) (417,983) 121,215 200,632 96,136
Accounting allocation (in the ratio of 35,000:22,000:88,000 No. of transactions) 64,983 (269,215) 40,846 163,386
Total cost allocated 0 0 1,186,478 3,819,522

ekkarill92 answered 1 year ago
Next > < Previous

Related Solutions

Exercise 11-33 Cost Allocation: Reciprocal Method (LO 11-4) University Printers has two service departments (Maintenance and...
Exercise 11-33 Cost Allocation: Reciprocal Method (LO 11-4) University Printers has two service departments (Maintenance and Personnel) and two operating departments (Printing and Developing). Management has decided to allocate maintenance costs on the basis of machine-hours in each department and personnel costs on the basis of labor-hours worked by the employees in each. The following data appear in the company records for the current period: Maintenance Personnel Printing Developing Machine-hours ? 455 455 2,590 Labor-hours 315 ? 294 1,491 Department...
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 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 – 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...
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...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT