Question:
Comparison of Allocation Methods
GB Service Corporation has two service departments, Administration and Accounting, and two operating departments, East and West. Administration costs are allocated on the basis of employees, and Accounting costs are allocated on the basis of number of transactions. A summary of GB operations follows:
|
|
Administration
|
Accounting
|
East
|
West
|
|
Employees
|
-
|
25
|
15
|
60
|
|
Transactions
|
50,000
|
-
|
10,000
|
40,000
|
|
Department direct costs
|
$60,000
|
$24,000
|
$156,000
|
$600,000
|
Required
a. Allocate the cost of the service departments to the operating departments using the direct method.
b. Allocate the cost of the service departments to the operating departments using the step method. Start with Administration.
c. Allocate the cost of the service departments to the operating departments using the reciprocal method.
d. Comment on the results.