Harry Dishman owns and operates Harry\'s Septic Service and Legal Advice. Harry\

Question

Harry Dishman owns and operates Harry's Septic Service and Legal Advice. Harry's two revenue generating (production) operations are supported by two service departments: Clerical and Janitorial. Costs in the service departments are allocated in the following order using the designated allocation bases:

Clerical:

Variable cost: expected number of work orders processed

Fixed cost: long-run average number of work orders processed

Janitorial:

Variable cost: labor hours

Fixed cost: square footage of space occupied

Average and expected activity levels for next month (June) are as follows:

       
Expected costs in the service departments for June are as follows:
   

Under the step method of allocation, how much Clerical service cost should be allocated to the Septic Service operation for June? (Assume Clerical costs are allocated before Janitorial costs and round all calculations to the nearest whole dollar.)

Harry Dishman owns and operates Harry's Septic Service and Legal Advice. Harry's two revenue generating (production) operations are supported by two service departments: Clerical and Janitorial. Costs in the service departments are allocated in the following order using the designated allocation bases:

Clerical:

Variable cost: expected number of work orders processed

Fixed cost: long-run average number of work orders processed

Janitorial:

Variable cost: labor hours

Fixed cost: square footage of space occupied

Average and expected activity levels for next month (June) are as follows:

Explanation / Answer

Harry's Septic Service & Legal Advice Allocation of Clerical service cost Departments Janitorial Legal Advice Septic Advice Total Expected no of Work orders processed               21                       41                      66                  128 % basis for allocation 16.41% 32.03% 51.56% Variable cost to be allocated            13,600 Allocation of variable cost         2,231                 4,356                7,013 Avg no of work orders processed               36                       36                   128                  200 % basis for allocation 18.00% 18.00% 64.00% 100% Allocation of Fixed cost         1,800                 1,800                6,400            10,000 Total Allocation of Clerical Cost         4,031                 6,156             13,413            23,600 So $13,413 of clerical cost should be allocated to Septic service.

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