Captain Corporation has three production departments A, B, and C. Captain Corpor

Question

Captain Corporation has three production departments A, B, and C. Captain Corporation also has two service departments, IT and Human Resources. IT costs are allocated based on value of technology assets employed, and Human Resources costs are allocated based on number of employees. Assume that IT provides more service to the other departments than does the Human Resources Department. Dept. Direct Costs Employees Asset Value IT $450,000 25 $450,000 Human Resources 250,000 10 600,000 A 700,000 10 300,000 B 200,000 5 150,000 C 250,000 10 800,000 Refer to Captain Corporation. Using the direct method, allocate the service department cost (IT& Human Resources) to the three production departments.

Explanation / Answer

Solution :-

100000 (250000 * 10 / 25)

(Total technology assets employed in Production departments A, B and C = 300000 + 150000 + 800000

= $ 1250000.)

(Total number of employees in Production departments A, B and C = 10 + 5 + 10 = 25).

Particulars Department A Department B Department C IT department cost allocation 108000 (450000 * 300000 / 1250000) 54000 (450000 * 150000 / 1250000) 288000 (450000 * 800000 / 1250000) Human resources cost allocation 100000 (250000 * 10 / 25) 50000 (250000 * 5 / 25)

100000 (250000 * 10 / 25)

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