Direct, Step-Down, and Reciprocal Methods, Assigning Costs to Departments Cost i

Question

Direct, Step-Down, and Reciprocal Methods, Assigning Costs to Departments Cost information for Red Oak Town Library is as follows: Support Departments Operating Departments Direct Costs Janitorial Administration Books Other Media Total Salaries $20,000 $40,000 $70,000 $50,000 $180,000 Supplies 10,000 5,000 15,000 20,000 50,000 Allocation Base Volumes Square metres 50 50 120 30 250 Employees 1 1 2 1 5 REQUIRED In addition to directly traceable costs, the library incurred $24,000 for a building lease. A. Allocate to departments any costs that have not been traced and then calculate total costs assigned to each department. B. Allocate the support department costs to the operating departments using the direct method. C. Allocate the support department costs to the operating departments using the step-down method. Allocate first the costs for the support department that has the largest direct costs.

Explanation / Answer

Solution a:

Solution B:

Solution C:

From Computation of Total cost assigned to each deparment Support Department Operating Departments Janitorial Admin Books Other media Direct Cost: Salaries $20,000.00 $40,000.00 $70,000.00 $50,000.00 Supplies $10,000.00 $5,000.00 $15,000.00 $20,000.00 Building Lease (50:50:120:30) $4,800.00 $4,800.00 $11,520.00 $2,880.00 Total $34,800.00 $49,800.00 $96,520.00 $72,880.00

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