Final answer:
Cost allocation in Woodstock Binding is executed using the step method with two sequences: first allocating IT costs based on IT tickets, and then allocating HR costs based on the number of employees in each department. After the service departments' costs are allocated, the total costs for the operating departments can be calculated.
Step-by-step explanation:
Cost Allocation Using the Step Method
When dealing with the allocation of service department costs to operating departments, management can opt for distinct methods like the step method. Here, we have a scenario in which Woodstock Binding wants to allocate IT and HR service costs based on IT tickets and number of employees, respectively. To do that, we need to follow two separate sequences of allocation.
Allocation Starting with IT: First, we'll allocate the IT department's costs based on IT tickets to the HR, Publishing, and Binding departments. The Publishing and Binding departments will receive larger portions of the cost since they have more IT tickets compared to HR.
Allocation Starting with HR: Second, we allocate the costs of the HR department based on the number of employees in each operating department. With Publishing having 24 employees and Binding 40, the Binding department will bear a higher proportion of HR costs.
After allocating the service departments' costs, the total costs for Publishing and Binding can be computed by adding these allocated costs to their direct costs. This approach ensures that internal support services are fairly charged to the parts of the company that actually use them.