Question

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:

Personnel Payroll Housewares Clothing Furniture
Direct department cost $ 7,800 $ 3,200 $ 12,200 $ 20,000 $ 16,750
Number of employees 5 4 8 16 4
Gross payroll $ 6,000 $ 3,300 $ 10,600 $ 17,400 $ 8,100
(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 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.
Do not round until your final answers. Round answers to the nearest dollar.
Service Departments Producing Departments
Payroll Personnel Housewares Clothing Furniture
Total costs

Answer 1

a. Department No of employee

Payroll 4

Housewares 8

Clothing 16

Furniture 4

Total 32

Personnel department cost allocated to payroll department

= (Direct department cost of personnel * No of payroll employees) / Total no of employees

= $7,800 * 4/32

=$975

Percentage of total personnel department services that was provided to the payroll Department is

= Cost allocated to payroll department/ Personnel direct cost

= $975/$7,800

=0.125

=12.5%

b. Department Gross payroll $

Personnel 6,000

Housewares 10,600

Clothing 17,400

Furniture 8,100

Total 42,000

Payroll department cost allocated to personnel department

= (Direct department cost of payroll * Gross payroll of personnel department) / Total gross payroll

= $3,200 * $6,000 / $42,100

=$456

Percentage of total payroll department services that was provided to the Personnel Department is

= Cost allocated to personnel department / Payroll direct cost

=$456 / $3,200

= 0.143

=14.3%

c. Allocation of personnel department cost is on basis of no of employee

Department No of Employee Proportion Percentage

Payroll 4 4/32 12.50%

Housewares 8 8/32 25%

Clothing 16 16/32 50%

Furniture 4 4/32 12.50%

Total 32

Allocation of personnel department cost is on basis of Gross payroll

Department Gross payroll Proportion Percentage

Housewares $10,600 10,600/36,100 29.36%

Clothing $17,400 17,400/36,100 48.20%

Furniture $8,100 8,100/36,100 22.44%

Total $36,100

Schedule showing Personnel Department and Payroll Department cost allocations to the operating departments

Service Dept. Producing Dept.

Personnel Payroll Housewares Clothing Furniture

Direct dept $7,800 $3,200 $12,700 $20,000 $16,750

cost

Allocation ($7,800) $975 $1,950 $3,900 $975

of personnel

cost

Allocation - ($4,175) $1,226 $2,012 $937

of Payroll

cost

Total $0 $0 $15,376 $25,912 $18,662