Question

Direct, Step-Down, and Reciprocal Methods, Assigning Costs to Departments Cost information for Red Oak Town Library is as follows: Support Departments Operating Departments Direct Costs Janitorial Administration Books Other Media Total Salaries $20,000 $40,000 $70,000 $50,000 $180,000 Supplies  10,000   5,000  15,000  20,000   50,000 Allocation Base Volumes Square metres      50      50     120      30      250 Employees       1       1       2       1        5 REQUIRED In addition to directly traceable costs, the library incurred $24,000 for a building lease. A. Allocate to departments any costs that have not been traced and then calculate total costs assigned to each department. B. Allocate the support department costs to the operating departments using the direct method. C. Allocate the support department costs to the operating departments using the step-down method. Allocate first the costs for the support department that has the largest direct costs.

Answer 1

Solution a:

From	Computation of Total cost assigned to each deparment
	Support Department		Operating Departments
	Janitorial	Admin	Books	Other media
Direct Cost:
Salaries	$20,000.00	$40,000.00	$70,000.00	$50,000.00
Supplies	$10,000.00	$5,000.00	$15,000.00	$20,000.00
Building Lease (50:50:120:30)	$4,800.00	$4,800.00	$11,520.00	$2,880.00
Total	$34,800.00	$49,800.00	$96,520.00	$72,880.00

Solution B:

From	Service Department Cost Allocation - Direct Method
	Support Department		Operating Departments
	Janitorial	Admin	Books	Other media
Department Cost:
Salaries & Supplies	$30,000.00	$45,000.00	$85,000.00	$70,000.00
Building Lease	$4,800.00	$4,800.00	$11,520.00	$2,880.00
Allocation of Janitorial:
Salaries & Supplies (2:1)	-$30,000.00		$20,000.00	$10,000.00
Building Lease (120:30)	-$4,800.00		$3,840.00	$960.00
Allocation of Admin:
Salaries & Supplies (2:1)		-$45,000.00	$30,000.00	$15,000.00
Building Lease (120:30)		-$4,800.00	$3,840.00	$960.00
Total	$0.00	$0.00	$154,200.00	$99,800.00

Solution C:

From	Service Department Cost Allocation - Step Method
	Support Department		Operating Departments
	Janitorial	Admin	Books	Other media
Department Cost:
Salaries & Supplies	$30,000.00	$45,000.00	$85,000.00	$70,000.00
Building Lease	$4,800.00	$4,800.00	$11,520.00	$2,880.00
Allocation of Admin:
Salaries & Supplies (1:2:1)	$11,250.00	-$45,000.00	$22,500.00	$11,250.00
Building Lease (50:120:30)	$1,200.00	-$4,800.00	$2,880.00	$720.00
Allocation of Janitorial:
Salaries & Supplies (2:1)	-$41,250.00		$27,500.00	$13,750.00
Building Lease (120:30)	-$6,000.00		$4,800.00	$1,200.00
Total	$0.00	$0.00	$154,200.00	$99,800.00