Question

• Clinic has 2 service departments, A and B, and two revenue departments Y and Z. The clinic uses the indirect method of allocating service departments costs and begins the allocation with department A. The following information is given:
  
  Direct cost pool:
  
  Department A: $100,000
  
  Department B: 150,000
  
  Department Y: 750,000
  
  Department Z: 500,000
  
  Total
  
  $1,500,000
  
  Department A services provided to:
  
  Department A: 5%
  
  Department B: 10%
  
  Department Y: 65%
  
  Department Z: 20%
  
  Total
  
  100%
  
  Department B services provided to:
  
  Department A: 10%
  
  Department B: -0-%
  
  Department Y: 60%
  
  Department Z: 30%
  
  Total
  
  100%
  

• How many steps will be necessary to complete the allocation?
• After Step 1, the total cost of department B rounded to the nearest whole dollar is $__________
• After Step 1, the total cost of department A rounded to the nearest whole dollar is $__________

• After all steps have been completed, the total cost of department Y rounded to the nearest whole dollar is $ __________

Answer 1

1.total cost of department B =150,000+cost allocated from Dep A

150,000+100,000*(10/95)=160,526.32

2.Total cost of Department A=100,000

indirect method started with allocation of dep A,no cost will allocate from other service departments to A

3.Total cost of Department Y=750,000+cost from A and B

cost from A=100,000*(65/95)=68,421.05

cost from B=160,526.32*(60/90)=107,017.55

total cost of Department Y=925,438.6

4.total cost of department Z=500,000+cost from A and B

cost from A=100,000*(20/95)=21,052.63

cost from B=160,526.32*(30/90)=53,508.77

total cost of department Z=574,561.4