Question

In: Accounting

Direct, Step-Down, and Reciprocal Methods, Assigning Costs to Departments Cost information for Red Oak Town Library...

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

Solutions

Expert Solution

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

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