Question

BluStar Company has two service departments, Administration and Accounting, and two operating departments, Domestic and International. Administration costs are allocated on the basis of employees, and Accounting costs are allocated on the basis of number of transactions. A summary of BluStar operations follows.

6 BluStar Company has two service departments, Administration and Accounting, and two operating departments, Domestic and International. Administration costs are allocated on the basis of employees, and Accounting costs are allocated on the basis of number of transactions. A summary of BluStar operations follows. 10 points Administration Accounting 23 Employees Transactions Department direct costs 32,eee $364,000 Domestic 50 19,000 $960,000 International 27 76,eee $3,630,000 $141,800 Required: a. Allocate the cost of the service departments to the operating departments using the direct method. b. Allocate the cost of the service departments to the operating departments using the step method. Start with Administration. c. Allocate the cost of the service departments to the operating departments using the reciprocal method. Answer is not complete. Complete this question by entering your answers in the tabs below. Required A Required B Required C Allocate the cost of the service departments to the operating departments using the direct method. (Do not round intermediate calculations. Negative amounts should be indicated by a minus sign.) Το Accounting S 141,000 S Domestic 960,000 International $ 3,630,000 From Department costs Administration allocation Accounting allocation Total cost Administration S 364,000 (364,000) 0 0 IS 0 S 141,000 IS 960,000 $ 3,630,000 < Required A Required B >

Answer 1

A.	From		Administration		Accounting	Domestic	International
	Department costs		364,000		141,000	960,000	3,630,000
	Administration allocation		(364,000)		-	236,364	127,636
	Accounting allocation		-		(141,000)	28,200	112,800
	Total cost		-		-	1,224,564	3,870,436
B.	From		Administration		Accounting	Domestic	International
	Department costs		364,000		141,000	960,000	3,630,000
	Administration allocation		(364,000)		83,720	182,000	98,280
	Accounting allocation		-		(224,720)	44,944	179,776
	Total cost		-		-	1,186,944	3,908,056
C.	From		Administration		Accounting	Domestic	International
	Department costs		364,000		141,000	960,000	3,630,000
	Administration allocation		(419,718)		97,544	209,204	112,970
	Accounting allocation		55,718		(238,544)	36,565	146,261
	Total cost		-		-	1,205,769	3,889,231
	Working
	Total service department costs	=	Direct costs of the service department	+	Cost allocation of the service department
	S1 (Administration)	=	364,000	+	32/127 S2
	S2 (Accounting)	=	141,000	+	0.23 S1
	Substituting, the first equation into the second yields
	S2 = $141,000 + 0.23 ($364,000 + 32/127 S2)
	S2 = $141,000 + 83,720 + 7.36/127 S2
	S2 = $238,544
	S1 = $364,000 + 32/137 S2
	S1 = $419,718