In: Accounting
Direct, Step-Down, and Reciprocal Methods, Assigning Costs to Departments Cost information for Red Oak Town Library is as follows:
Support Department | Support Department | Operating Department | Operating Department | ||
Direct Costs | Janitorial | Admin | 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 | |||||
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.
Allocation base -
salaries and supplies - employees
building lease - square metres
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 |