FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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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 | $ | 210,000 | $ | 320,000 | $ | 253,000 | $ | 7,590,000 | $ | 5,400,000 | |||||
| Employee hours | 21,000 | 31,000 | 21,000 | 416,000 | 357,000 | ||||||||||
| Number of employees | 8 | 17 | 7 | 190 | 160 | ||||||||||
| Square footage occupied | 4,600 | 14,500 | 5,200 | 246,900 | 202,900 | ||||||||||
The costs of the service departments are allocated on the following bases: Administration, employee-hours; Communications, number of employees; and Facilities, square footage occupied.
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?
Expert Solution
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Formula used :
The amount of Communications Department costs is allocated to the Deposits Department :
Communication department costs * Number of employees deposit department / ( Number of employees deposit department + loans department )
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