A Company has two service depts and two operating depts. The following data are

Question

A Company has two service depts and two operating depts. The following data are available from last year:

Service Department Operating Department
                                         1               2                X               Y
Departmental costs     $ 74,000     $ 53,000   $ 211,000      $111,000
Number of transactions   21,000        23,000     9,000              27,000
Square feet occupied       3,000          2,000     3,000                3,000

The costs of service depts 1 and 2 are allocated on the basis of number of transactions and square feet occupied respectively. No distinction is made between fixed and variable costs.

Assuming that the company allocates service department costs by the direct method, the total overhead costs allocated from Department 2 to Department Y are:

Explanation / Answer

Service Department Operating Department
                                         1               2                X               Y
Departmental costs     $ 74,000     $ 53,000   $ 211,000      $111,000
Number of transactions   21,000        23,000     9,000              27,000
Square feet occupied       3,000          2,000     3,000                3,000


Allocation: Serv Dept 1
(9/36, 27/36) x 74,000 (74,000)                    18,500          55,500

Serv Dept 2
(3/6,3/6) x 53,000                       (53,000)     26,500            26,500
Totals                                                           256,000         193,000

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