5 BluStar Company has two service departments, Administration and Accounting, an

Question

5 BluStar Company has two service departments, Administration and Accounting, and two operating departments, Domestic and International. Administration costs are allocated on the basis of employees, and Accounting costs are allocated on the basis of number of transactions. A summary of BluStar operations follows: 39.000 351.000 20.000 148 000 940,000$3,700,000 80.000 Department direct costs Required a. Allocate the cost of the service departments to the operating departments using the direct method. (Do not round intermediate calculations. Negative amounts should be indicated by a minus sign.) b. Allocate the cost of the service departments to the operating departments using the step method. Start with Administration. (Do not round intermediate calculations. Negative amounts should be indicated by a minus sign.) Total cost allocated c. Allocate the cost of the service departments to the operating departments using the reciprocal method. (Do not round intermediate calculations. Negative amounts should be indicated by a minus sign.)

Explanation / Answer

Direct method

Under direct method the sevice department cost are allocated to operating departments only

Accounting cost allocation to the rest of the operating departments only, coz, admin cost is already zero and completely allocated

Given Admin Accounting Domestic international Employees          22.00             48.00                30.00 Transactions 39000       20,000.00         80,000.00 Departmental cost($) 351000 148,000.00     940,000.00     3,700,000.00

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