Question

Bens Corporation has three service departments (Repairs, HR, and IT) and two production departments (M1 and M2). The following usage data for each of the service departments for the previous period follow.

Repairs HR IT M1 M2
Repairs _____ 0% 0% 40% 60%
HR 10% _____ 20% 35% 35%
IT 0% 10% ____ 20% 70%

The direct costs of the service departments in the previous period were $36,000 for Repairs, $55,600 for HR, and $81,000 for IT.

Required:
Use the step method to allocate the service department costs to the production departments. Allocate HR costs first, followed by IT, and then Repairs

Answer 1

HR allocation:

$3,960 = 0.10 × $39,600

$7,920 = 0.20 × $39,600

$13,860 = 0.35 × $39,600

$13,860 = 0.35 × $39,600

IT allocation:

$52,920 cost of IT is $45,000 (direct cost) + $7,920 (allocated from HR)

$11,760 = 0.2 × $52,920

(0.2 + 0.7)

$41,160 = 0.7 × $52,920

(0.2 + 0.7)

Repairs allocation:

$23,960 cost of Repair is $20,000 (direct cost) + $3,960 (allocated from HR)

$9,584 = 0.40 × $23,960

$14,376 = 0.60 × $23,960

Answer 2

Bens Corporation

Allocation of Service Departments' Direct Costs:

Repairs HR IT M1 M2 Total

Direct costs $36,000 $55,600 $81,000 $172,600

Step allocation:

HR direct costs 5,560 -55,600 11,120 19,460 19,460 0

IT costs 0 0 -92,120 20,471 71,649 0

Repairs costs -41,560 0 0 16,624 24,936 0

Total costs allocated 0 0 0 $56,555 $116,045 $172,600

Step-by-step explanation:

a) Data and Calculations:

Usage data:

Repairs HR IT M1 M2

Repairs 0% 0% 40% 60%

HR 10% __ 20% 35% 35%

IT 0% 10% __ 20% 70%

HR Costs = $55,600:

Repairs = $5,560 ($55,600 * 10%)

IT = $11,120 ($55,600 * 20%)

M1 = $19,460 ($55,600 * 35%)

M2 = $19,460 ($55,600 * 35%)

IT costs = $92,120:

Repairs = $0 ($92,120 * 0%)

M1 = $20,471 ($92,120 * 20/90)

m2 = $71,649 ($92,120 * 70/90)

Repair costs = $41,560:

M1 = $16,624 ($41,560 * 40%)

M2 = $24,936 ($41,560 * 60%)