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.

 

	Administration			Accounting			Domestic			International
Employees		–			29			45			26
Transactions		36,000			–			20,000			80,000
Department direct costs	$	361,000		$	149,000		$	960,000		$	3,700,000

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.

• Required A

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.)

To
From	Administration	Accounting	Domestic	International
Department costs	$361,000selected answer correct	$149,000selected answer correct	$960,000selected answer correct	$3,700,000selected answer correct
Administration allocation	(361,000)selected answer correct	0not attempted	228,803selected answer correct	132,197selected answer correct
Accounting allocation	0not attempted	(149,000)selected answer correct	29,800selected answer correct	119,200selected answer correct
Total cost	$0	$0	$1,218,603	$3,951,397

rB

Allocate the cost of the service departments to the operating departments using the step method. Start with Administration. (Do not round intermediate calculations. Negative amounts should be indicated by a minus sign.)

To
From	Administration	Accounting	Domestic	International
Department costs	$361,000selected answer correct	$149,000selected answer correct	$960,000selected answer correct	$3,700,000selected answer correct
Administration allocation	(361,000)selected answer correct	104,690not attempted	162,450 selected answer correct	93,860 selected answer correct
Accounting allocation	0not attempted	(253,690)selected answer correct	50,738 selected answer correct	202,952 selected answer correct
Total cost	$0	$0	$1,173,188	$3,996,812

Allocate the cost of the service departments to the operating departments using the reciprocal method. (Do not round intermediate calculations. Negative amounts should be indicated by a minus sign.)

To
From	Administration	Accounting	Domestic	International
Department costs	$361,000selected answer correct	$149,000selected answer correct	$960,000selected answer correct	$3,700,000selected answer correct
Administration allocation	(433,737)selected answer correct	125,784selected answer correct	195,182selected answer correct	112,772 selected answer correct
Accounting allocation	72,737 not attempted	(274,784)selected answer correct	40,409 selected answer correct	161,638 selected answer correct
Total cost	$0	$0	$1,195,591	$3,974,410

Answer 1

For part A) 

Domestic:  45+26= 71    20,000+80,000= 100,000

admin allocation 45/(45+26) *361,000= 228,802.81690141 or 228,803

account allocation= 149,000* 20,000/(20,000+80,000)= 29,800

International

admin allocation: 361,000* 26/(45+26)= 132,197

or 361,000- 228,803= 132,197

account allocation: 149,000* 80,000/(20,000+80,000)= 119,200

or 149,000- 29,800= 119,200

for part B) 29+ 45+ 26= 100

Accounting

admin allocation 361,000* 29/100= 104,690

Account allocation 149,000+ 104,690= 253,690 change to negative #

make sure total =0

Domestic 29+45+26= 100

admin allocation 361,000* 45/100= 162,450

Account allocation 253,690(account section)* 20,000/100,000= 50,738

International

admin allocation  361,000- 104,690- 162,450= 93,860

or 361,000* 26/(29+45+26)= 93,860

Account allocation= 253,690- 50,738= 202, 952

or 253,690* 80,000/(20,000+80,000)= 202,952

for part C) 

                                  Administration       Accounting  Domestic  International

Employees                         –                         29              45              26          Transactions                   36,000                    –             20,000      80,000 

Department direct costs $361,000   $149,000     $960,000    $3,700,000 

Step 1) 29+ 45+ 26= 100             29/100= 0.29

36,000= 36     36,000+20,000+80,000= 136,000      

36/136= 0.2647058824

step 2) s1 admin: 361,000+ 0.2647058824 S2

S2 account: 149,000+ 0.2900 S1

Step 3) S2; 149,000+ 0.29( 361,000+ 0.2647058824)

S2= 149,000+ 104,690+ 0.0767647059        

(1-0.0767647059 = 0.923235294)1

0.9232352941 S2= 253,690                  

(253,690/0.9232352941= 274,783.68907821)

S2= 274,784 place in Accounting allocation in Accounting section as -#

Step 4) S1= 361,000+ 0.2647058824( 274,783.68907821)

= 433,736.85888657 or 422,737 placed in admin allocation under 

administration section.

Administration

admin allocation= -433,737

account allocation= 434,737- 361,000= 72,737

or 274,784* 0.2647058824= 72,736.941189402

Accounting

admin allocation 274,784- 149,000= 125,784

or 433,737* 0.29= 125,784

Account allocation= -274,784

Domestic      36+20+80= 136

admin allocation: 433,737* 0.45= 195,181.65 or 195,182

account allocation  274,784* 20,000/(36,000+20,000+80,000)

= 40,409.411764706 or 40,409

International

admin allocation= 433,737* 0.26= 112,771.62 or 112,772

account allocation 274,784* 80,000/(136,000)= 161,637.64705882

or 161,638.

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