BluStar Company has two service departments Administration a

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: 9,000 $351,000 Department direct eosts $148,000 940,000 $3700.000 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.) From b. 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.) otal cost alocated c. 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.) Total cost allocated

Solution

Solution a:

Solution b:

Solution c:

Service department cost = Direct Cost + Allocated Cost

Administration Department Cost = $351,000 + [39 / 139]* Accounting cost

Accounting Department Cost = $148,000 + [22 /100]* Administration Cost

= $148,000 + 0.22 * Administration Cost

Accounting Department Cost = $148,000 + 0.22 [$351,000 + (39 / 139)* Accounting cost]

Accounting Department Cost = $148,000 + $77,220 + 0.06172*Accounting cost

Accounting Cost = $225,220 / 0.93827 = $240,038

Administration Cost = $351,000 + 39/139*$240,038 = $418,349

From	Service Department Cost Allocation - Direct Method
Service Department	Operating Departments
Administration	Accounting	Domestic	International
Direct charges of department	$351,000.00	$148,000.00	$940,000.00	$3,700,000.00
Administration (48:30)	-$351,000.00		$216,000.00	$135,000.00
Accounting (2:8)		-$148,000.00	$29,600.00	$118,400.00
Total	$0.00	$0.00	$1,185,600.00	$3,953,400.00