Question

Support department cost allocation

Blue Mountain Masterpieces produces pictures, paintings, and other home decor. The Printing and Framing production departments are supported by the Janitorial and Security departments. Janitorial costs are allocated to the production departments based on square feet, and security costs are allocated based on asset value. Information about these departments is detailed in the following table:

	Janitorial Department	Security Department	Printing Department	Framing Department
Square feet	760	1,040	4,230	4,770
Asset value	$900	$1,240	$12,390	$8,610
Department cost	$5,200	$6,600	$33,000	$29,000

Management has experimented with different support department cost allocation methods in the past. The different allocation methods did not yield large differences of cost allocation to the production departments.

1. Determine which support department cost allocation method Blue Mountain Masterpieces would most likely use to allocate its support department costs to the production departments.

a. Direct cost allocation method.

b. Sequential cost allocation method.

c. Reciprocal cost allocation method.

d. None of the above.

a

2. Determine the total costs allocated from each support department to each production department using the method you determined in part (1).

	Printing Department	Framing Department
Janitorial Department cost allocation	$	$
Security Department cost allocation	$	$

3a. Identify the department that gets higher cost due to square feet based cost allocation.

a. Janitorial department

b. Security department

c. Printing department

d. Framing department

d

3b. Identify the department that gets higher cost due to asset value based cost allocation.

a. Janitorial department

b. Security department

c. Printing department

d. Framing department

c

Answer 1

				Printing		Framing
				Department		Department
Janitorial Department cost allocation				$ 2,444.00		$ 2,756.00
				( $ 0.58 x 4230)		( 0.58 x 4770)
Security Department cost allocation				$ 3,894.00		$ 2,706.00
				( $ 0.31 x $ 12390)		( $ 0.31 x $ 8610)

Workings:

Total Square feet of printing and framing department =						4230 + 4770
					=	9000
Total cost of Janitorial Department =						$ 5,200.00
Recovery Rate =						$ 5200 / 9000
					=	$          0.58

Total value of Assets of printing and framing department =						$ 12390 + $ 8610
					=	$ 21,000.00
Total cost of Security Department =						$    6,600.00
Recovery Rate =						$            0.31