O\'Brian\'s Department Stores allocates the costs of the Personnel and Payroll d
ID: 2350276 • Letter: O
Question
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 cost on the basis of the number of employees and Payroll Department costs on the basis of gross payroll. Cost and allocation for June is as follows:Personnel Payroll Housewares Clothing Furniture
Direct dept. cost $6900 $3200 $12200 $20000 $15750
Number of employees 5 3 8 15 4
Gross payroll $6000 $3300 $11200 $17400 $8100
1. Determine the percentage of total Personnel Department services that was provided to the Payroll Department.
2. Determine the percentage of total Payroll Department services that was provided to the Personnel Department.
3. Prepare a schedule showing Personnel Department and Payroll Department cost allocations to the operating departments, assuming O'Brian's uses the step method. (round calculations to nearest dollar.
Show work please.
Explanation / Answer
1. Determine the percentage of total Personnel Department services that was provided to the Payroll Department.
Personnel costs are based on the number of employees. There are a total of 5+3+8+15+4 = 35 employees. So the percentage provided to payroll is 3/35 = 0.086 or 8.6%.
2. Determine the percentage of total Payroll Department services that was provided to the Personnel Department.
Payroll costs are based on gross payroll. The total gross payroll is 6,000 + 3,300 + 11,200 + 17,400 + 8,100 = 46,000. The percentage provided to personnel is 6,000/46,000 = 0.130 or 13.0%
3. Prepare a schedule showing Personnel Department and Payroll Department cost allocations to the operating departments, assuming O'Brian's uses the step method. (round calculations to nearest dollar.
personnel
payroll
housewares
clothing
furniture
Dept. costs before allocation
6900
3200
12200
20000
15750
Allocation:
Personnel
-6900
690
1840
3450
920
Payroll
-3890
1187
1844
859
Total costs allocated
0
0
15227
25294
17529
Explanation: To do this by the step method, first you allocate the expenses of the service department that provides the most in services. So personal would be allocated to payroll, housewares, clothing, and furniture based on the number of employees of those departments. There are 30 employees in those departments. The amount allocated to personnel is 6900*(3/30) = 690, to housewares is 6900*(8/30) = 1840, to clothing is 6900*(15/30)* = 3450 and to furniture is 6900*(4/30) = 920.
Then payroll (direct expenses and allocation from personnel, totaling 3890) is allocated to housewares, clothing and furniture based on the gross payroll. The amount of gross payroll of these three departments is 36,700. The amount allocated to housewares is 3890*11200/36700 = 1187. The amount allocated to clothing is 3890*17400/36700 = 1844, and the amount allocated to furniture is 3890*8100/36700 = 859.
Then add up for the total costs allocated.
personnel
payroll
housewares
clothing
furniture
Dept. costs before allocation
6900
3200
12200
20000
15750
Allocation:
Personnel
-6900
690
1840
3450
920
Payroll
-3890
1187
1844
859
Total costs allocated
0
0
15227
25294
17529
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