Question

State Financial Corp. has three service departments (Administration, Communications, and Facilities), and two production departments (Deposits and Loans). A summary of costs and other data for each department prior to allocation of service department costs for the year ended December 31 follows:

	Administration			Communications			Facilities			Deposits			Loans
Direct costs	$	240,000		$	300,000		$	256,000		$	8,170,000		$	4,800,000
Employee hours		23,000			34,000			23,000			420,000			367,000
Number of employees		9			17			4			230			160
Square footage occupied		4,500			14,300			5,500			242,100			202,400

  

The costs of the service departments are allocated on the following bases: Administration, employee-hours; Communications, number of employees; and Facilities, square footage occupied. (Do not round intermediate calculations.)

Required:

a. Assume that the bank elects to distribute service department costs to production departments using the direct method. What amount of Communications Department costs is allocated to the Deposits Department?

b. Assume the same method of allocation as in requirement (a). What amount of Administration Department costs is allocated to the Loans Department?

c. Assuming that the bank elects to distribute service department costs to other departments using the step method (starting with Facilities and then Communications), what amount of Facilities Department costs is allocated to the Communications Department?

d. Assume the same method of allocation as in requirement (c). What amount of Communication Department costs is allocated to Facilities?

Answer 1

Answer a & b.
Support Department Cost Allocation Statement
Under Direct Method
	Service			Production
	Administration	Communications	Facilities	Deposits	Loan
Budgeted Overhead Costs	$                       240,000	$                  300,000	$           256,000
Allocation of Administration	$                     (240,000)			$            128,081	$              111,919
Allocation of Communication		$               (300,000)		$            176,923	$              123,077
Allocation of Facilities			$        (256,000)	$            139,432	$              256,000
Total Allocated Costs	$                                   -	$                             -	$                      -	$            444,437	$              490,996
Allocation of Administration
Deposits - $240,000 X 420,000 hrs / 787,000 Hrs	$                       128,081
Loan - $240,000 X 367,000 hrs / 787,000 Hrs	$                       111,919
Total	$                       240,000
Allocation of Communication
Deposits - $300,000 X 230/390	$                       176,923
Loan - $300,000 X 160/390	$                       123,077
Total	$                       300,000
Allocation of Facilities
Deposits - $256,000 X 242,100 / 444,500	$                       139,432
Loan - $256,000 X 202,400 / 444,500	$                       116,568
Total	$                       256,000
Answer a.
Amount of Communications Department costs is allocated to the Deposits Department - $176,923
Answer b.
amount of Administration Department costs is allocated to the Loans Department - $111,919
Answer c& D
Support Department Cost Allocation Statement
Under Step Down Method (Starting with Facilities then Communications then Administration)
	Service			Production
	Administration	Communications	Facilities	Deposits	Loan
Budgeted Overhead Costs	$                       240,000	$                  300,000	$           256,000	$                       -	$                          -
Allocation of Facilities	$                            2,487	$                      7,902	$        (256,000)	$            133,774	256,000
Allocation of Communications	$                            6,945	$               (307,902)	$                      -	$            177,487	123,470
Allocation of Administration	$                     (249,432)	$                             -	$                      -	$            133,115	116,317
Total Allocated Costs	$                                  (0)	$                            (0)	$                      -	$            444,376	$              495,787
Allocation of Facilities:
	Allocation Rate (Sq. Footage)	Weighted Base	Allocated Cost
Administration	4,500	0.97%	$               2,487
Communications	14,300	3.09%	$               7,902
Deposits	242,100	52.26%	$           133,774
Loan	202,400	43.69%	$           111,838
Total	463,300	100.00%	$           256,000
Allocation of Communication:
	Allocation Rate (no. of employees)	Weighted Base	Allocated Cost
Administration	9	2.26%	$               6,945
Deposits	230	57.64%	$           177,487
Loan	160	40.10%	$           123,470
Total	399	100.00%	$           307,902
Allocation of Administration:
	Allocation Rate (employee hrs)	Weighted Base	Allocated Cost
Deposits	420,000	53.37%	$           133,115
Loan	367,000	46.63%	$           116,317
Total	787,000	100.00%	$           249,432
Answer c.
Facilities Department costs is allocated to the Communications Department - $7,902
Answer d.
What amount of Communication Department costs is allocated to Facilities - $0