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

Question

arry 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: No.of Work Labor Square Orders Expected Average Hours Footage Septic Service 64 122 700 1,940 Legal Advice 39 34 980 2,340 Clerical 34 34 540 1,740 Janitorial 19 34 340 1,140 Expected costs in the service departments for June are as follows: Clerical Janitorial Variable Costs $13,400 $5,600 Fixed Costs $ 9,800 $2,200 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.) $17,290. $15,258. $14,369. $13,322.

Explanation / Answer

Answer : $13,322

Clerical service cost should be allocated to the Septic Service operation for June:

= (64/122)*13400 + (122/190)*9800

= $13322

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