Question

(Appendix 4B) Support Department Cost Allocation MedServices Inc. is divided into two operating departments: Laboratory and Tissue Pathology. The company allocates delivery and accounting costs to each operating department. Delivery costs include the costs of a fleet of vans and drivers that drive throughout the state each day to clinics and doctors' offices to pick up samples and deliver them to the centrally located laboratory and tissue pathology offices. Delivery costs are allocated on the basis of number of samples. Accounting costs are allocated on the basis of the number of transactions processed. No effort is made to separate fixed and variable costs; however, only budgeted costs are allocated. Allocations for the coming year are based on the following data: Support Departments Operating Departments Delivery Accounting Laboratory Pathology Overhead costs $240,000 $270,000 - $456,000 46,800 Number of samples $345,000 70,200 24,700 - 2,000 Transactions processed 13,300

Answer 1

Req 1)
	Laboratory	Pathology
Proportion of :
Number of samples	70200/(70200+46800)=0.6	46800/(70200+46800)=0.4
Transactions processed	24700/(24700+13300)=0.65	13300/(24700+13300)=0.35
Direct costs	345000	456000
Delivery	240000*0.6=144000	240000*0.4=96000
Accounting	270000*0.65=175500	270000*0.35=94500
Total	664500	646500
Req 2)
	Delivery	Accounting	Laboratory	Pathology
Transactions ratios :
Number of samples	0	0	70200/(70200+46800)=0.6	46800/(70200+46800)=0.4
Transactions processed	2000/(2000+24700+13300)=0.05	0	24700/(2000+24700+13300)=0.6175	13300/(2000+24700+13300)=0.3325
Direct costs	240000	270000	345000	456000
Accounting	13500	-13500
		-166725	166725
		-89775		89775
Total	253500	0	511725	545775
Delivery	-152100		253500*0.6=152100
	-101400			253500*0.4=101400
Total	0	0	663825	647175