Alice Gibbons owns and operates Alice\'s Abstracting Service. Alice\'s two reven

Question

Alice Gibbons owns and operates Alice's Abstracting Service. Alice's two revenue generating operations (Abstracting Services and Closing Services) are supported by two service departments: Clerical and Custodial. Costs in the service departments are allocated in the following order using the designated allocation bases.
Clerical: number of transactions processed
Custodial: square footage of space occupied
Average and expected activity levels for next month are as follows:

# of Transactions Square Footage Expected Costs

Required:
Use the direct method to allocate the service department costs to the revenue generating departments. Provide the total costs for the revenue departments.

Explanation / Answer

Clerical Cost = $40,000

Custodial Cost =$10000

# of Transactions for Abstract Services = 50

# of Transactions for Clsoing Services = 0

Clerical Cost for Abstract Services = 40,000*50/(0+50) = $40,000

Clerical Cost for losing Services = 40,000*0/(0+50) =$0

Square Footage for Abstract Services = 1800

Square Footage for Clsoing Services = 2200

Custodial Cost for Abstract Services = 10,000*1800/(1800+2200) = $4500

Custodial Cost for Closing Services = 10,000*2200/(1800+2200)=$5500

Total cost for Abstract Services = $40,000+$4500 =$44,500

Total cost for Closing Services = $5500+0 = $5500

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