Compton Information Services Inc has two service departments

Compton Information Services, Inc. has two service departments: human resources and billing. Compton\'s operating departments, organized according to the special industry each department serves, are health care, retail, and legal services. The billing department supports only the three operating departments, but the human resources department supports all operating departments and the billing department. Other relevant information follows Human Resources Health Care egal Billing Retail Number of employees Annual cost Annual revenue Services 40 $720,000 $1,428,000 $6,,0$4,800,0 2,800,000 -$9,880,ee0 $6,200,000$4,800,900 10 20 80 60 This is the operating cost before allocating service department costs. Required a. Allocate service department costs to operating departments, assuming that Compton adopts the step method. The company uses the number of employees as the base for allocating human resources department costs and department annual revenue as the base for allocating the billing department costs. b. Allocate service department costs to operating departments, assuming that Compton adopts the direct method. The company uses the number of employees as the base for allocating the human resources department costs and department annual revenue as the base for allocating the billing department costs. c. Compute the total allocated cost of service centers for each operating department using each allocation method Complete this question by entering your an swers in the tabs below Required A1 Required A2 Required B1 Required B2 Required C1 Required C2 Allocate service department costs to operating departments, assuming that Compton adopts the step method. The company uses the number of employees as the base for allocating the human resources department costs Allocation Weight Base Allocate Cost Department Billing Health Care Retail Legal Services Total Rate

Solution

Answer a & C. Support Department Cost Allocation Statement Under Step Down Method Support Operating Human Resources Billing Health Care Retail Legal Services Budgeted Overhead Costs $         720,000 $       1,428,000 $       6,000,000 $        4,800,000 $          2,800,000 Allocation of Human Resources $       (720,000) $             72,000 $           288,000 $            216,000                  144,000 Allocation of Billing $     (1,500,000) $           675,000 $            465,000                  360,000 Total Allocated Costs $                     -   $                      -   $       6,963,000 $        5,481,000 $          3,304,000 Allocation of Human Resources: Allocation Rate Weighted Base Allocated Cost Billing $         720,000 $                        0 $             72,000 Health Care $         720,000 $                        0 $           288,000 Retail $         720,000 $                        0 $           216,000 Legal Services $         720,000 $                        0 $           144,000 Total $                        1 $           720,000 Allocation of Billing: Allocation Rate Weighted Base Allocated Cost Health Care $     1,500,000 $                        0 $           675,000 Retail $     1,500,000 $                        0 $           465,000 Legal Services $     1,500,000 $                        0 $           360,000 Total $                        1 $       1,500,000 Answer b & C. Support Department Cost Allocation Statement Under Direct Method Support Operating Human Resources Billing Health Care Retail Legal Services Budgeted Overhead Costs $         720,000 $       1,428,000 $       6,000,000 $        4,800,000 $          2,800,000 Allocation of Human Resources $       (720,000) $           320,000 $            240,000 $              160,000 Allocation of Billing $     (1,428,000) $           642,600 $            442,680 $              342,720 Total Allocated Costs $                     -   $                      -   $       6,962,600 $        5,482,680 $          3,302,720 Allocation of Human Resources Health Care - $720,000 X 80/180 $         320,000 Retail - $720,000 X 60/180 $         240,000 Legal Services - $720,000 X 40/180 $         160,000 Total $         720,000 Allocation of Billing Health Care - $1,428,000 X ($9,000,000 / $20,000,000) $         642,600 Retail - $1,428,000 X ($9,000,000 / $20,000,000) $         442,680 Legal Services - $1,428,000 X ($9,000,000 / $20,000,000) $         342,720 Total $     1,428,000