Question

Interdepartment Services: Step Method

O'Brian's Department Stores allocates the costs of the Personnel and Payroll departments to three retail sales departments, Housewares, Clothing, and Furniture. In addition to providing services to the operating departments, Personnel and Payroll provide services to each other. O'Brian's allocates Personnel Department costs on the basis of the number of employees and Payroll Department costs on the basis of gross payroll. Cost and allocation information for June is as follows:

	Personnel	Payroll	Housewares	Clothing	Furniture
Direct department cost	$ 7,800	$ 3,200	$ 12,200	$ 20,000	$ 16,750
Number of employees	5	4	8	16	4
Gross payroll	$ 6,000	$ 3,300	$ 10,600	$ 17,400	$ 8,100

(a) Determine the percentage of total Personnel Department services that was provided to the Payroll Department. (Round your answer to one decimal place.)
Answer %

(b) Determine the percentage of total Payroll Department services that was provided to the Personnel Department. (Round your answer one decimal place.)
Answer %

(c) Prepare a schedule showing Personnel Department and Payroll Department cost allocations to the operating departments, assuming O'Brian's uses the step method.

For each department below, enter the total costs calculated from your schedule.   

Do not round until your final answers. Round answers to the nearest dollar.

	Service Departments		Producing Departments
	Payroll	Personnel	Housewares	Clothing	Furniture
Total costs	Answer	Answer	Answer	Answer	Answer

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Answer 1

a). Personnel deptt cost is allocated on the basis of number of employees.

Number of emp. In payroll = 4 employees

Total number of employees = 37 employees

Percentage of allocation = 4/37*100 = 10.8 %

b) Payroll Deptt cost is allocated on the basis of gross payroll

So percentage of allocation to personnel deptt = 6000/45400*100 = 13.2 %

Answer (c)

Total cost summary

Service Deptt. Producing Deptt. Personnel Deptt Payroll Deptt Houseware Clothing Furniture Direct Deptt cost - - 12200 20000 16750 Personnel Deptt 1013.51 843.24 2637.83 3372.97 843.24 (5/37) (4/37) (8/37) (16/37) (4/37) Payroll Deptt. 422.90 232.59 747.13 1226.43 570.92 Total coat 1436 1076 15585 24600 18164