Not-A-Mega Bank has three service departments (Administration, Communications, a

Question

Not-A-Mega Bank 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 $310,000 $480,000 $398,400 $13,450,000 $9,500,000 Employee hours 14,000 24,000 11,500 290,000 210,000 Number of employees 6 10 3 150 120 Square footage occupied 3,900 9,100 3,700 185,000 149,000 The costs of the service departments are allocated on the following bases: Administration, employee hours; Communications, number of employees; and Facilities, square footage occupied. (Do not round your intermediate calculations. Round your answer to the nearest dollar amount.) Required: (a) Assume that Not-A-Mega Bank elects to distribute service department costs directly 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 part (a). What amount of Administration Department costs is allocated to the Loans Department? (c) Assuming that Not-A-Mega 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 part (c). What amount of Communication Department costs is allocated to Facilities?

Explanation / Answer

Production department Service department
Deposit Loan Total Administration Communication Facility Total
Cost Prior to allocation $ 13,450,000.00 $ 9,500,000.00 $ 22,950,000.00 $      310,000.00 $        480,000.00 $ 398,400.00 $ 1,188,400.00
employee Hrs $        290,000.00 $      210,000.00 $        500,000.00 $        14,000.00 $          24,000.00 $    11,500.00 $        49,500.00
Number of emplyee $                150.00 $              120.00 $                270.00 $                   6.00 $                  10.00 $               3.00 $                19.00
area in sq feet $        185,000.00 $      149,000.00 $        334,000.00 $           3,900.00 $            9,100.00 $      3,700.00 $        16,700.00
allocation basis emp hrs number of emp area
Direct method
Communication cost to Deposit Department Administration department cost allocation to Loan department
Comm. Cost per employee in Production department $             1,777.78 Admin cost per emplyee Hr $                     0.62
ANS. A Allocated Cost $        266,666.67 Ans. B Allocated cost $        130,200.00
Step Method
1 Allocation of Facility cost by Sq feet $               1.15
Allocation of Facility cost by Sq feet $        212,403.46 $      171,070.89 $        383,474.35 $           4,477.69 $          10,447.95 $        14,925.65
2 Allocation of communication cost $      1,739.13
Allocation of communication cost $        260,869.57 $      208,695.65 $        469,565.22 $        10,434.78
Cost after step allocation $ 13,923,273.02 $ 9,879,766.55 $ 23,803,039.57 $      324,912.48 $        490,447.95
ANS C Allocation of facility cost to communicatoin department $                10,448
ANS D in step method, the allocation is not done from communcation to facility department as it is not the given priority

Related Questions

Navigate

• Browse (All)
• Browse N
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.