ACCT 2200 Study Guide - Sheraton Hotels And Resorts, Marginal Cost, Volvo B4B Engine

Question 4: Service department costallocation

Inns Battery Company has two service departments: Maintenanceand Personnel. Maintenance Department costs are allocated on thebasis of budgeted maintenance-hours. Personnel Department costs areallocated based on the number of employees. Data on budgetedmaintenance-hours and number of employees are as follows:

Required:

4a. Using the direct method, determine the amount of supportdepartment costs to be allocated to Production Department A.

4b. Using the step-down method, determine the amount ofMaintenance Department costs to be allocated to ProductionDepartment A, if the service department with the highest percentageof interdepartmental support service is allocated first.

4c. Using the reciprocal method, determine the amount ofmaintenance department costs to be allocated to ProductionDepartment A (round up to nearest dollar).

4d. List and explain two possible reasons why a manager mightprefer that budgeted rather than actual cost-allocation rates beused when cost is being allocated to his/her department fromanother department. Use the textbook and/or other relevantresources to support your answer.

Inns Battery Company has two service departments: Maintenanceand Personnel. Maintenance Department costs are allocated on thebasis of budgeted maintenance-hours. Personnel Department costs areallocated based on the number of employees. Data on budgetedmaintenance-hours and number of employees are as follows:

Required:

4a. Using the direct method, determine the amount of supportdepartment costs to be allocated to Production Department A.

4b. Using the step-down method, determine the amount ofMaintenance Department costs to be allocated to ProductionDepartment A, if the service department with the highest percentageof interdepartmental support service is allocated first.

4c. Using the reciprocal method, determine the amount ofmaintenance department costs to be allocated to ProductionDepartment A (round up to nearest dollar).

4d. List and explain two possible reasons why a manager mightprefer that budgeted rather than actual cost-allocation rates beused when cost is being allocated to his/her department fromanother department. Use the textbook and/or other relevantresources to support your answer.

2) Broadway Department Store allocates the personnel and payroll department costs to the sales departments of Shoes, Automotive, and Clothing. Human resources (personnel) and payroll also provide services to each other. Personnel costs are allocated by number of employees and payroll costs are allocated by gross payroll. Costs and other information for January were as follows:

Required:

Prepare a schedule that includes the total cost of operating the sales departments for January. Allocate service costs using the step-down method with the sequence of allocation based on highest percentage support concept.