In: Accounting
The company has two revenue centers: Retail Services and Commercial Services. There are also three service centers: Maintenance, Office Support, and Facility Support. The maintenance center supplies support to all four other centers. The Maintenance area is allocated based on maintenance work orders (Office Support: 10 work orders, Facility Support: 20 work orders, Retail Services: 25 work orders, Commercial Services: 75 work orders). The Office Support is allocated based on hours (Facility Support: 40 hours of Office Support, Retail Services: 50 hours of Office Support, Commercial Services: 200 hours of Office Support). The Facility Support is allocated based on number of customers (Retail Services: 150 customers, Commerical Services: 75 customers). Overhead rates are calculated based on the number of invoices generated (Retail Services: 40,000 invoices, Commercial Services: 10,000 invoices). | ||||||
Allocate overhead to the two revenue centers based on the direct method, and calculate the departmental overhead rates. | ||||||
Maintenance | Office Support | Facility Support | Retail Services | Commercial Services | ||
Center Costs | $300,000 | $125,000 | $100,000 | $75,000 | $50,000 | |
Maintenance | ||||||
Office Support | ||||||
Facility Support | ||||||
Total | ||||||
Overhead Rate | ||||||
Allocate overhead to the two revenue centers based on the step method, and calculate the departmental overhead rates. | ||||||
Maintenance | Office Support | Facility Support | Retail Services | Commercial Services | ||
Center Costs | $300,000 | $125,000 | $100,000 | $75,000 | $50,000 | |
Maintenance | ||||||
Office Support | ||||||
Facility Support | ||||||
Total | ||||||
Overhead Rate |
Answer a. | |||||
Service Department Cost Allocation Statement | |||||
Under Direct Method | |||||
Service | Revenue | ||||
Maintenance | Office Support | Facility Support | Retail Services | Commercial Services | |
Budgeted Overhead Costs | 300,000 | 125,000 | 100,000 | 75,000 | 50,000 |
Allocation of Maintenace | (300,000) | 75,000 | 225,000 | ||
Allocation of Office Support | (125,000) | 25,000 | 100,000 | ||
Allocation of Facility support | (100,000) | 66,667 | 33,333 | ||
Total Allocated Costs | - | - | - | 241,667 | 408,333 |
No of Invoices | 40,000 | 10,000 | |||
Overhead Rate (per Invoice) | 6.04 | 40.83 | |||
Allocation of Maintenace | |||||
Retail Services - $300,000 X 25/100 | 75,000 | ||||
Commercial Services - $300,000 X 75/100 | 225,000 | ||||
Total | 300,000 | ||||
Allocation of Office Support | |||||
Retail Services - $125,000 X 50/250 | 25,000 | ||||
Commercial Services - $125,000 X 200/250 | 100,000 | ||||
Total | 125,000 | ||||
Allocation of Facility Support | |||||
Retail Services - $100,000 X 150/225 | 66,667 | ||||
Commercial Services - $100,000 X 75/225 | 33,333 | ||||
Total | 100,000 | ||||
Answer a & C. | |||||
Support Department Cost Allocation Statement | |||||
Under Step Down Method | |||||
Service | Revenue | ||||
Maintenance | Office Support | Facility Support | Retail Services | Commercial Services | |
Budgeted Overhead Costs | 300,000 | 125,000 | 100,000 | 75,000 | 50,000 |
Allocation of Maintenace | (300,000) | 23,077 | 46,154 | 57,692 | 173,077 |
Allocation of Office Support | (148,077) | 20,424 | 25,531 | 102,122 | |
Allocation of Facility support | (166,578) | 111,052 | 55,526 | ||
Total Allocated Costs | - | (0) | 0 | 269,275 | 380,725 |
No of Invoices | 40,000.00 | 10,000.00 | |||
Overhead Rate (per Invoice) | 6.73 | 38.07 | |||
Allocation of Maintenance: | |||||
Work Order | Weighted Base | Allocated Cost | |||
Office Support | 10 | 7.69% | 23,077 | ||
Facility Support | 20 | 15.38% | 46,154 | ||
Retail Services | 25 | 19.23% | 57,692 | ||
Commercial Services | 75 | 57.69% | 173,077 | ||
Total | 130 | 100.00% | 300,000 | ||
Allocation of Office Support: | |||||
Hours | Weighted Base | Allocated Cost | |||
Facility Support | 40 | 13.79% | 20,424 | ||
Retail Services | 50 | 17.24% | 25,531 | ||
Commercial Services | 200 | 68.97% | 102,122 | ||
Total | 290 | 100.00% | 148,077 | ||
Allocation of Facility Support: | |||||
No. of Customer | Weighted Base | Allocated Cost | |||
Retail Services | 150 | 66.67% | 111,052 | ||
Commercial Services | 75 | 33.33% | 55,526 | ||
Total | 225 | 100.00% | 166,578 |