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	7,300	3,800	12,300	20,000	15,650
Number of employees	5	2	8	14	3
Gross payroll	6,100	2,800	10,800	17,200	8,500

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

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

(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	Service Departments	Producing Departments	Producing Departments	Producing Departments
	Payroll	Personnel	Housewares	Clothing	Furniture
Total costs	$	$	$	$	$

Answer 1

(a) 7%

Working:

	Personnel	Payroll	Housewares	Clothing	Furniture
Number of employees	5	2	8	14	3
% of service provided		7%	30%	52%	11%

(b) 14%

Working:

	Personnel	Payroll	Housewares	Clothing	Furniture
Gross Wages	6100	2800	10800	17200	8500
% of service provided	14%		25%	40%	20%

(c)

Step-Down Method of Allocation
	Personnel	Payroll	Housewares	Clothing	Furniture
Direct Departmental Costs	7300	3800	12300	20000	15650
Personnel cost allocation		7%	30%	52%	11%
Allocation	-7300	511	2190	3796	803
Total Costs	0	4311	14490	23796	16453
Payroll cost allocation			25%	40%	20%
Allocation		-4311	1268	2029	1014
Total Costs		0	15758	25825	17467