Question

2) Broadway Department Store allocates the personnel and payroll department costs to the sales departments of Shoes, Automotive, and Clothing. Human resources (personnel) and payroll also provide services to each other. Personnel costs are allocated by number of employees and payroll costs are allocated by gross payroll. Costs and other information for January were as follows:

Personnel		Payroll		Shoes		Automotive		Clothing
Current Costs	$ 13,800		$ 6,400		$ 24,400		$ 40,000		$ 31,500
Gross Payroll	$ 3,000		$ 1,500		$ 5,600		$ 8,700		$ 4,050
Number of Employees	5		3		8		15		4

Required:

Prepare a schedule that includes the total cost of operating the sales departments for January. Allocate service costs using the step-down method with the sequence of allocation based on highest percentage support concept.

Answer 1

	Service Departments		Producing Departments
	Payroll	Personnel	Housewares	Clothing	Furniture
Total costs $	0	0	$30,434	$50,774	$116,100

	Service Departments		Producing Departments
	Payroll	Personnel	Housewares	Clothing	Furniture	Total
Direct department cost $	$6,400	$13,800	$24,400	$40,000	$31,500	$116,100
Allocation of Payroll department costs	-$6,400	$899	$1,679	$2,608	$1,214	$0
	$0	$14,699	$26,079	$42,608	$32,714	$116,100
Allocation of Personnel department costs		-$14,699	$4,355	$8,166	$2,178	$0
Total producing department costs $	$0	$0	$30,434	$50,774	$34,892	$116,100

Allocation of Payroll department costs in the ratio of gross payroll 3000 : 5600: 8700 : 4050. Total 21350
Allocation of Personnel department costs in the ratio of number of employees 8 : 15 : 4. Total 27