6 State Financial Corp. has three service departments (Administration, Communica
ID: 2392146 • Letter: 6
Question
6 State Financial Corp. has three service departments (Administration, Communications, and Facilities), and two production departments (Deposits and Loans). A summary of costs and other data for each department prior to allocation of service department costs for the year ended December 31 follows: $160,000 21 500 252,000 $8,020,000 4,900,000 Employee hours 31,000 Square footage occupied 5.100 5.300 46.300 201,600 The costs of the service departments are allocated on the following bases Facilities, square footage occupied. (Do not round intermediate calculations.) Required a. Assume that the bank elects to distribute service department costs to production departments using the direct method. What amount of costs is allocated to the Deposits Department? b. Assume the same method of allocation as in requirement (a). What amount of Administration Department costs is allocated to the Loans Department? c. Assuming that the bank elects to distribute service department costs to other departments using the step method (starting with Facilities and then Communications), what amount of Facilities Department costs is allocated to the d. Assume the same method of allocation as in requirement (c). What amount of Communication t costs is allocated to Facilities?Explanation / Answer
Given,
Administration
communications
facilities
Deposits
Loans
Direct costs
$ 1,60,000
$ 3,40,000
$ 2,52,000
$ 80,20,000
$ 49,00,000
Employee hours
21500
31000
21000
463000
331000
Number of employees
7
11
4
220
160
Square footage occupied
5100
14000
5300
246300
201600
a.ans
Department
Basis
Allocation of Communication overhead to Deposits
Communications
Number of employees
(340000*220/380)
(220+160)
$ 1,96,842.11
b.ans
Department
Basis
Allocation of Communication overhead to Deposits
Administration
Employee-hours
(160000 x 331000/794000
(463000+394000)
$ 66,700.25
c.ans
Allocation of facilities overhead to communications using step method
Basis
facilities
communications
Administration
Deposits
Loans
total
Direct costs
$ 2,52,000
$ 3,40,000
$ 1,60,000
$ 80,20,000
$ 49,00,000
Allocation
Square footage
14000
5100
246300
201600
467000
Allocated overhead
(252000 x 14000/467000)
$ 7,554.60
d.ans
Allocation of COmmunications overhead to facilities using step method
Basis
communications
facilities
Administration
Deposits
Loans
total
Direct costs
$ 3,40,000
$ 2,52,000
$ 1,60,000
$ 80,20,000
$ 49,00,000
Allocation
Number of employees
4
7
220
160
391
Allocated overhead
(340000 x 4/391)
$ 3,478.26
Administration
communications
facilities
Deposits
Loans
Direct costs
$ 1,60,000
$ 3,40,000
$ 2,52,000
$ 80,20,000
$ 49,00,000
Employee hours
21500
31000
21000
463000
331000
Number of employees
7
11
4
220
160
Square footage occupied
5100
14000
5300
246300
201600
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