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

A1 Step method of allocating HR service dept costs Allocation rate based on no.of employees / total no of employees Department Allocation rate Weight base Allocated Cost Billing                       0.10         7,20,000.00            72,000.00 Health Care                       0.40         7,20,000.00         2,88,000.00 Retail                       0.30         7,20,000.00         2,16,000.00 Legal Services                       0.20         7,20,000.00         1,44,000.00 Total                       0.90         6,48,000.00 A2 Step method of allocating Billing service dept costs Allocation of billing costs 1428000 plus HR allocated costs of 72000. Allocation of billing costs based on Annual revenue/ total revenue Department Allocation rate Weight base Allocated Cost Health Care                       0.45      15,00,000.00         6,75,000.00 Retail                       0.31      15,00,000.00         4,65,000.00 Legal Services                       0.24      15,00,000.00         3,60,000.00 Total                       1.00      15,00,000.00 B1 Direct method of allocating HR dept costs Allocation rate based on no.of employees / total no of employees Department Allocation rate Weight base Allocated Cost Billing                       0.10         7,20,000.00            72,000.00 Health Care                       0.40         7,20,000.00         2,88,000.00 Retail                       0.30         7,20,000.00         2,16,000.00 Legal Services                       0.20         7,20,000.00         1,44,000.00 Total                       1.00         6,48,000.00 B2 Direct method of allocating Billing dept costs Allocation of billing costs based on Annual revenue/Total revenue without considering allocated HR costs like in step method Department Allocation rate Weight base Allocated Cost Health Care                       0.45      14,28,000.00         6,42,600.00 Retail                       0.31      14,28,000.00         4,42,680.00 Legal Services                       0.24      14,28,000.00         3,42,720.00 Total                       1.00      14,28,000.00 C1 Allocated costs of Opearting Segments using Step Method Allocation of service dept costs based on above working of step method plus annual costs Department Allocation of Service Dept costs Annual Costs Total Costs Health Care        9,63,000.00      60,00,000.00      69,63,000.00 Retail        6,81,000.00      48,00,000.00      54,81,000.00 Legal Services        5,04,000.00      28,00,000.00      33,04,000.00 Total      21,48,000.00 1,36,00,000.00 1,57,48,000.00 C2 Allocated costs of Opearting Segments using Direct Method Allocation of service dept costs based on above working of Direct method plus annual costs Department Allocation of Service Dept costs Annual Costs Total Costs Health Care        9,30,600.00      60,00,000.00      69,30,600.00 Retail        6,58,680.00      48,00,000.00      54,58,680.00 Legal Services        4,86,720.00      28,00,000.00      32,86,720.00 Total      20,76,000.00 1,36,00,000.00 1,56,76,000.00