Kenan Mortgage Company has two service departments (human resources and accounti
ID: 2419597 • Letter: K
Question
Kenan Mortgage Company has two service departments (human resources and accounting) and two production departments (commercial lending and consumer lending) that relate to its mortgage writing and servicing business. The following data are available from last year:
Assuming that Kenan Mortgage Company allocates service department costs by the step-down method, starting with the HR Department, how much overhead would be allocated from each service department to each producing department?
Service Depts
Production Depts
HR
Accounting
Commercial Lending
Consumer Lending
Dept costs before allocation
300,000
240,000
800,000
600,000
HR allocation
-300,000
27,273
172,727
100,000
Accounting allocation
0
-267270
?
?
Difference due to rounding
3
Dept. costs after allocation
0
0
?
?
Service Depts
Production Depts
HR
Accounting
Commercial Lending
Consumer Lending
Dept costs before allocation
300,000
240,000
800,000
600,000
HR allocation
-300,000
27,273
172,727
100,000
Accounting allocation
0
-267270
?
?
Difference due to rounding
3
Dept. costs after allocation
0
0
?
?
Explanation / Answer
Alocation of Cost By Step Down Method
Note: Accounting Allocation
Commercial : 267,270 / (1,200 +2,000) = 83.5218 X 1,200 = 100,226
Consumer = 83.5218 X 2,000 = 167,044
Particulars Service Department Production Department HR Accounting Coomercial Consumer Dept. Cost before Allocation 300,000 240,000 800,000 600,000 HR Allocation -300,000 27,273 172,727 100,000 Accounting Allocation - 267,270 100,226 167,044 Difference Due to round off 3 Dept. Cost After Allocation 1,072,953 867,047Related Questions
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