Interdepartment Services: Step Method O\'Brian\'s Department Stores allocates th

Question

Interdepartment Services: Step Method

O'Brian's Department Stores allocates the costs of the Personnel and Payroll departments to three retail sales departments, Housewares, Clothing, and Furniture. In addition to providing services to the operating departments, Personnel and Payroll provide services to each other. O'Brian's allocates Personnel Department costs on the basis of the number of employees and Payroll Department costs on the basis of gross payroll. Cost and allocation information for June is as follows:

(a) Determine the percentage of total Personnel Department services that was provided to the Payroll Department. (Round your answer to one decimal place.) _____%

(b) Determine the percentage of total Payroll Department services that was provided to the Personnel Department. (Round your answer to one decimal place.) ______%

(c) Prepare a schedule showing Personnel Department and Payroll Department cost allocations to the operating departments, assuming O'Brian's uses the step method.

For each department below, enter the total costs calculated from your schedule.   

Do not round until your final answers. Round answers to the nearest dollar.

Personnel Payroll Housewares Clothing Furniture Direct department cost $7,300 $3,800 $12,300 $20,000 $15,650 Number of employees 5 2 8 14 3 Gross payroll $6,100 $2,800 $10,800 $17,200 $8,500 Service Departments Producing Departments Payroll Personnel Housewares Clothing Furniture Total costs 0 15,227 X S24,981 0

Explanation / Answer

(a) Determine the percentage of total Personnel Department services that was provided to the Payroll Department.

Total number of emloyees (other than Personnel) = 2+8+14+3 = 27

We know, O'Brian's allocates Personnel Department costs on the basis of the number of employees

Therefore, 2/27*100 = 7.41% of total Personnel Department services are provided to the Payroll Department.

(b) Determine the percentage of total Payroll Department services that was provided to the Personnel Department.

Total Gross Payroll (other than Payroll Department) = $6,100 + $10,800 + $17,200 + $8,500 = $42,600

We know, O'Brian's allocates Payroll Department costs on the basis of the gross payroll

Therefore, $6,100 / $42,600*100 = 14.32% of total Payroll Department services were provided to the Personnel Department.

(c) Prepare a schedule showing Personnel Department and Payroll Department cost allocations to the operating departments, assuming O'Brian's uses the step method.

Personnel Cost Allocation

(Basis of no. of employees)

8/25*7300=

$2,336

14/25*7300=

$4,088

3/25*7300=

$876

Payroll Cost Allocation

(Basis of gross payroll)

$10,800/$36,500*$3,800

= $1,124.38

$17,200/$36,500*$3,800

= $1,790.68

$8,500/$36,500*$3,800

= $884.93

Payroll Personnel Housewares Clothing Furniture No of Employees 5 2 8 14 3 Allocation ___ 2/27*100=7.41% 8/27*100=29.63% 14/27*100=51.85% 3/27*100=11.11%

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