Aurora National Bank has two service departments, the Human Resources (HR) Depar
ID: 2474519 • Letter: A
Question
Aurora National Bank has two service departments, the Human Resources (HR) Department and the Computing Department. The bank has two other departments that directly service customers, the Deposit Department and the Loan Department. The usage of the two service departments’ output for the year is as follows:
Provider of Service
User of Service Human Resources Computing
Human Resources (HR) — 15 %
Computing 10 % —
Deposit 60 % 50 %
Loan 30 % 35 %
The budgeted costs in the two service departments for the year are as follows: Human Resources $ 459,000 Computing 688,500
Required: Use the step-down method to allocate the budgeted costs of the Human Resources and Computing departments to the Deposit and Loan departments. Aurora National Bank allocates the costs of the Human Resources Department first. (Do not round intermediate calculations.)
Deposit Loan
Allocation of HR Dept. Costs
Allocation of Computing Dept. Costs
Total Cost Allocated to Each Dept.
Explanation / Answer
Particulars Human resources Computing Deposit Loan Calculation Budgeted costs $459,000.00 $688,500.00 HR costs allocated $45,900.00 $275,400.00 $137,700.00 First HR costs are allocated to all department in the ratio of 10:60:30 Allocated costs before alloacation of Computig department $734,400.00 $275,400.00 $137,700.00 revised % of allocation of computing department costs 58.82% 41.18% The ratios of allocation are calculated as follows for Deposit department 50/85 and for Loan department it is 35/85. This is done as the 15% cost of HR cannot be allocated back,hence the total amount is allocated to the remaining service departments Allcation of computing department costs $432,000.00 $302,400.00 Total service department costs allocated $707,400.00 $440,100.00
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