SOLUTIONS TO EXERCISES

EXERCISE 17-15 (15 MINUTES)

Direct Customer Service
Departments Using Services
Deposit
Loan
Provider of Service
HR
Computing
Total

Cost to Be
Allocated
$ 459,000
688,500
$1,147,500

Proportion
(6/9)
(50/85)

Amount
$306,000
405,000
$711,000

Proportion
(3/9)
(35/85)

Amount
$153,000
283,500
$436,500

$1,147,500

Grand total

EXERCISE 17-16 (15 MINUTES)

Costs prior to allocation

Allocation of HR
Department costs
Allocation of Computing
Department costs
Total costs allocated to
each department
Total cost allocated to
direct customer service
departments

HR
Computing
$459,000 $688,500
$459,000 45,900(1/10)
$734,400

Direct Customer Service

Departments Using Services
Deposit
Loan
$275,400(6/10)
432,000(50/85)
$707,400

$137,700(3/10)
302,400(35/85)
$440,100

$1,147,500

EXERCISE 17-23 (25 MINUTES)

(a)

First, specify equations to express the relationships between the service

departments.
Notation: H denotes the total cost of Human Resources
C denotes the total cost of Computing
Equations:H=459,000 + .15C

(1)

C=688,500 + .10H

(2)

Solution of equations: Substitute from equation (2) into equation (1).

H

459,000 + .15(688,500 + .10H)

.985H

562,275

570,838 (rounded)

Substitute the value of H into equation (2).

C

688,500 + .10(570,838)

745,584 (rounded)

(b) Cost allocation

using the reciprocalservices method:

Traceable costs
Allocation of HR
Department costs
Allocation of Computing
Department costs
Total cost allocated to
each direct customer
service department
Total costs allocated
*Rounded

Direct Customer Service

Departments
Service Departments
Human
Resources
(HR)
Computing
$459,000
$688,500

Deposit

Loan
$171,251*(.3)

(570,838)

57,084*(.1)

$342,503*(.6)

111,838*(.15)

(745,584)

372,792(.50)
$715,295

260,954*(.35)
$432,205

$1,147,500