Question

Bens Corporation has three service departments (Repairs, HR, and IT) and two production departments (M1 and...

Bens Corporation has three service departments (Repairs, HR, and IT) and two production departments (M1 and M2). The following usage data for each of the service departments for the previous period follow.

Repairs HR IT M1 M2
Repairs — 0 % 0 % 40 % 60 %
HR 10 % — 20 % 35 % 35 %
IT 0 % 10 % — 20 % 70 %

The direct costs of the service departments in the previous period were $56,000 for Repairs, $75,600 for HR, and $126,000 for IT.

Required:

Use the step method to allocate the service department costs to the production departments. Allocate HR costs first, followed by IT, and then Repairs

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Answer #1
Answer: Allocation of Costs Under Step method
Repairs HR IT M1 M2
Service department costs $56,000 $75,600 $126,000 0 0
HR allocation $7,560
($75,600 x 10%)		 ($75,600) $15,120
($75,600 x 20%)		 $26,460
($75,600 x 35%)		 $26,460
($75,600 x 35%)
IT allocation
(20 : 70 )		 $0 $0 ($141,120)
($126,000 + $15,120)		 $31,360
($141,120 x 20 / 90)		 $109,760
($141,120 x 70 / 90)
Repairs allocation
( 40 : 60)		 ($63,560)
($56,000 + $7,560)		 0 0 $25,424
($63,560 x 40 / 100)		 $38,136
($63,560 x 60 / 100)
Total Cost allocated $0 $0 $0 $83,244 $174,356
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