Not-A-Mega Bank has three service departments (Administration, Communications, a

Question

Not-A-Mega Bank 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: Administration Communications Facilities Deposits Loans Direct costs $310,000 $490,000 $402,400 $12,900,000 $9,500,000 Employee hours 15,500 21,000 16,000 278,750 227,500 Number of employees 6 11 4 150 90 Square footage occupied 3,800 10,000 3,700 175,000 136,000 The costs of the service departments are allocated on the following bases: Administration, employee hours; Communications, number of employees; and Facilities, square footage occupied. (Do not round your intermediate calculations. Round your answer to the nearest dollar amount.) Required:

(a) Assume that Not-A-Mega Bank elects to distribute service department costs directly to production departments using the direct method. What amount of Communications Department costs is allocated to the Deposits Department?

(b) Assume the same method of allocation as in part (a).What amount of Administration Department costs is allocated to the Loans Department?

(c) Assuming that Not-A-Mega 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 Communications Department?

(d) Assume the same method of allocation as in part (c). What amount of Communication Department costs is allocated to Facilities?

Explanation / Answer

Not A mega Bank Departments Admin Communication Facilities Deposits Loans Total Direct Costs       310,000     490,000     402,400 12,900,000    9,500,000    23,602,400 Employee Hours         15,500        21,000       16,000         278,750        227,500          558,750 No of Employees                    6                11                  4                  150                  90                  261 Sq footage occupied            3,800        10,000          3,700         175,000        136,000          328,500 a Direct Method allocation of Communication cost departments for allocation Deposits Loans Total No of Employees                  150                  90                  240 % Allocation 62.50% 37.50% Total Amount to be allocated          490,000 Allocation Amounts         306,250        183,750 So communication dept cost allocated to Deposits dept is $306,250 b Direct Method allocation of Admin cost departments for allocation Deposits Loans Total Employee Hours         278,750        227,500          506,250 % Allocation 55.06% 44.94% Total Amount to be allocated          310,000 Allocation Amounts         170,691        139,309 So Admin dept cost allocated to Loan dept is $139,309 c Step Method   Departments Admin Communication Facilities Deposits Loans Total Direct Costs       310,000     490,000     402,400 12,900,000    9,500,000    23,602,400 Sq footage occupied            3,800        10,000                 -           175,000        136,000          324,800 % Allocation 1.17% 3.08% 0.00% 53.88% 41.87% 100.00% Total Amount to be allocated          402,400 Allocation Amounts            4,708        12,389                 -           216,810        168,493 So Facilities cost allocated to communication is $12389 d The question is ambiguous. If the same method of step down starting with Facilities cost is used , then Communication cost   will not be allocated to Facilities as the allocation cannot go reverse way.

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