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

Step Method of allocation Service Department Revenue Generating Department Clerical Janitorial Septic Service Legal Advice Variable cost                  13,900                              6,100 Fixed cost                  10,300 Allocation of Variable cost                 -13,900                              2,435                           7,001                                       4,464 (24:69:44) Allocation of Fixed cost                 -10,300                              1,868                           6,563                                       1,869 (39:137:39) Total                            -                           10,403                        13,564                                       6,333 Clerical service department cost allocated to Septic department for the month of June = $13564

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