Managerial Accounting

Ray H. Garrison, Eric W. Noreen, Peter C. Brewer

Chapter – 4 Appendix B

Service Department Allocations

Chapter 04 Appendix B: service department allocations

Chapter 04 Appendix B Service Department Allocations

True / False Questions

1. The step-down method allocates more total cost to operating departments than does the
direct method.
FALSE

AACSB: Reflective Thinking

AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Comprehension
Learning Objective: 04B-10 Allocate service department costs to operating departments using the direct method
Learning Objective: 04B-11 Allocate service department costs to operating departments using the step-down method
Level: Medium

2. The step-down method of allocation is more accurate than the direct method.
TRUE

AACSB: Reflective Thinking

AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Knowledge
Learning Objective: 04B-10 Allocate service department costs to operating departments using the direct method
Learning Objective: 04B-11 Allocate service department costs to operating departments using the step-down method
Level: Easy

3. The direct allocation method ignores the cost of interdepartmental services provided among
service departments and allocates all costs directly to operating departments.
TRUE

AACSB: Reflective Thinking

AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Knowledge
Learning Objective: 04B-10 Allocate service department costs to operating departments using the direct method
Level: Easy

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Chapter 04 Appendix B: service department allocations

4. Under the direct method of allocating service department costs, reciprocal services
provided among service departments are ignored.
TRUE

AACSB: Reflective Thinking

AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Knowledge
Learning Objective: 04B-10 Allocate service department costs to operating departments using the direct method
Level: Easy

Multiple Choice Questions

5. Gatlin Company has several service departments that provide services for each other as
well as for operating departments within the company. The method that would be least
accurate in allocating the company's service department costs would be:
A. by the step-down method.
B. by the direct method.
C. by cost behavior.
D. by the reciprocal method.

AACSB: Reflective Thinking

AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Knowledge
Learning Objective: 04B-10 Allocate service department costs to operating departments using the direct method
Learning Objective: 04B-11 Allocate service department costs to operating departments using the step-down method
Level: Easy

6. The step-down method of allocating service department costs:

A. is a less accurate method of allocation than the direct method.
B. can't be used when a company has more than two service departments.
C. is a simpler allocation method than the direct method.
D. ignores some interdepartmental services.

AACSB: Reflective Thinking

AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Comprehension
Learning Objective: 04B-10 Allocate service department costs to operating departments using the direct method
Learning Objective: 04B-11 Allocate service department costs to operating departments using the step-down method
Level: Medium

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Chapter 04 Appendix B: service department allocations

7. Hidden Corporation uses the direct method to allocate service department costs to operating
departments. The company has two service departments, Administrative and Facilities, and
two operating departments, Assembly and Wholesaling.

Administrative costs are allocated on the basis of employee hours and Facilities costs are
allocated on the basis of space occupied. The total Wholesaling Department cost after the
allocations of service department costs is closest to:
A. $389,876
B. $378,900
C. $392,340
D. $392,544

Allocation base for Administrative costs = 26,000 + 14,000 = 40,000

Allocation base for Facilities costs = 33,000 + 6,000 = 39,000

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 04B-10 Allocate service department costs to operating departments using the direct method
Level: Easy

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Chapter 04 Appendix B: service department allocations

8. Balthazar Clinic uses the direct method to allocate service department costs to operating
departments. The clinic has two service departments, Personnel and Support, and two
operating departments, Prenatal and Pediatrics.

Personnel Department costs are allocated on the basis of employee hours and Support
Department costs are allocated on the basis of space occupied in square feet. The total
Pediatrics Department cost after the allocations of service department costs is closest to:
A. $304,880
B. $310,281
C. $312,290
D. $312,554

Allocation base for Personnel costs = 23,000 + 13,000 = 36,000

Allocation base for Support costs = 37,000 + 6,000 = 43,000

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 04B-10 Allocate service department costs to operating departments using the direct method
Level: Easy

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Chapter 04 Appendix B: service department allocations

9. Amorim Corporation uses the direct method to allocate service department costs to
operating departments. The company has two service departments, Data Processing and
Personnel, and two operating departments, Assembly and Finishing.

Data Processing Department costs are allocated on the basis of computer workstations and
Personnel Department costs are allocated on the basis of employees. The total amount of Data
Processing Department cost allocated to the two operating departments is closest to:
A. $34,944
B. $145,367
C. $31,329
D. $25,774

Data Processing costs to be allocated = $34,944

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 04B-10 Allocate service department costs to operating departments using the direct method
Level: Easy

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Chapter 04 Appendix B: service department allocations

10. The direct method is used by Colquitt Publishing, Inc., to allocate service department
costs to operating departments. The company has two service departments, Information
Technology and Personnel, and two operating departments, Prepress and Printing.

Information Technology Department costs are allocated on the basis of computer workstations
and Personnel Department costs are allocated on the basis of employees. The total Prepress
Department cost after service department allocations is closest to:
A. $516,249
B. $522,964
C. $520,389
D. $510,887

Allocation base for Information Technology costs = 59 + 38 = 97

Allocation base for Facilities costs = 106 + 33 = 139

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 04B-10 Allocate service department costs to operating departments using the direct method
Level: Easy

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Chapter 04 Appendix B: service department allocations

11. Silton Surgical Hospital uses the direct method to allocate service department costs to
operating departments. The hospital has two service departments, Telecommunications and
Administration, and two operating departments, Surgery and Recovery.

Telecommunications Department costs are allocated on the basis of the number of

telecommunications ports in departments and Administration Department costs are allocated
on the basis of employees. The total Surgery Department cost after service department
allocations is closest to:
A. $278,389
B. $276,783
C. $274,208
D. $269,621

Allocation base for Telecommunication costs = 49 + 49 = 98

Allocation base for Administration costs = 49 + 48 = 97

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 04B-10 Allocate service department costs to operating departments using the direct method
Level: Easy

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Chapter 04 Appendix B: service department allocations

12. Rich Company has a Custodial Services department which services the company's
Maintenance department and two operating departments, Machinery and Milling. Costs of
Custodial Services are allocated to the other departments on the basis of square footage of
space occupied. The amount of space occupied by each department is given below:

Budgeted costs in Custodial Services amount to $86,400. The amount of Custodial Services
cost allocated to Maintenance under the step-down method would be:
A. $5,184
B. $5,400
C. $0
D. $5,760

Allocation rate for Custodial services costs = Cost to be allocated ÷ Allocation base
= $86,400 ÷ (9,000 square feet + 45,000 square feet + 90,000 square feet) =$0.60 per square
foot
Custodial services department cost allocated to Maintenance = $0.60 per square foot × 9,000
square feet = $5,400

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 04B-11 Allocate service department costs to operating departments using the step-down method
Level: Medium

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Chapter 04 Appendix B: service department allocations

13. Bankert Corporation uses the step-down method to allocate service department costs to
operating departments. The company has two service departments, General Management and
Physical Plant, and two operating departments, Sales and After-Sales. Data concerning those
departments follow:

General Management Department costs are allocated first on the basis of employee time and
Physical Plant Department costs are allocated second on the basis of space occupied. The total
After-Sales Department cost after allocations is closest to:
A. $307,594
B. $300,100
C. $310,240
D. $310,376

Allocation base for General Management costs = 2,000 + 33,000 + 13,000 = 48,000
Allocation base for Physical Plant costs = 33,000 + 8,000 = 41,000

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 04B-11 Allocate service department costs to operating departments using the step-down method
Level: Easy

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Chapter 04 Appendix B: service department allocations

14. Poteete, Inc., allocates service department costs to operating departments using the step-
down method. The company has two service departments, Administration and Physical Plant,
and two operating departments, Assembly and Testing. Data concerning those departments
follow:

Administration Department costs are allocated first on the basis of employee time and
Physical Plant Department costs are allocated second on the basis of space occupied. The total
Testing Department cost after allocations is closest to:
A. $539,189
B. $526,180
C. $538,930
D. $537,376

Allocation base for Administration costs = 1,000 + 26,000 + 17,000 = 44,000

Allocation base for Physical Plant costs = 38,000 + 2,000 = 40,000

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 04B-11 Allocate service department costs to operating departments using the step-down method
Level: Easy

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Chapter 04 Appendix B: service department allocations

15. Diprima Clinic uses the step-down method to allocate service department costs to
operating departments. The clinic has two service departments, Personnel and Information
Technology (IT), and two operating departments, Family Medicine and Pediatric. Data
concerning those departments follow:

Personnel costs are allocated first on the basis of employees and IT costs are allocated second
on the basis of PCs. The total Pediatric Department cost after allocations is closest to:
A. $233,732
B. $238,715
C. $238,298
D. $205,318

Allocation base for Personnel costs = 20 + 137 + 170 = 327

Allocation base for IT costs = 129 + 104 = 233

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 04B-11 Allocate service department costs to operating departments using the step-down method
Level: Easy

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Chapter 04 Appendix B: service department allocations

16. Stazenski Children's Clinic allocates service department costs to operating departments
using the step-down method. The clinic has two service departments, Administration and
Information Technology (IT), and two operating departments, Prenatal and Pediatric. Data
concerning those departments follow:

Administration costs are allocated first on the basis of employees and IT costs are allocated
second on the basis of PCs. The total Pediatric Department cost after allocations is closest to:
A. $435,029
B. $390,920
C. $434,832
D. $423,486

Allocation base for Administration costs = 26 + 115 + 169 = 310

Allocation base for IT costs = 100 + 166 = 266

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 04B-11 Allocate service department costs to operating departments using the step-down method
Level: Easy

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Chapter 04 Appendix B: service department allocations

The Uinta Company has two service departments and two operating departments. The
following data are available from last year:

The costs of service departments 1 and 2 are allocated on the basis of number of transactions
and square feet occupied respectively. No distinction is made between fixed and variable
costs.

17. Assuming that Uinta allocates service department costs by the direct method, the total
overhead costs allocated from Department 1 to Department X are:
A. $18,000
B. $25,200
C. $42,000
D. $29,400

Allocation base for Service Department 1 costs = 14,000 + 16,000 = 30,000

Allocation base for Service Department 2 costs = 3,000 + 2,000 = 5,000

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 04B-10 Allocate service department costs to operating departments using the direct method
Level: Medium

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Chapter 04 Appendix B: service department allocations

18. Assuming that Uinta allocates service department costs by the direct method, the total
overhead costs allocated from Department 2 to Department Y are:
A. $22,400
B. $16,800
C. $42,000
D. $14,000

Allocation base for Service Department 1 costs = 14,000 + 16,000 = 30,000

Allocation base for Service Department 2 costs = 3,000 + 2,000 = 5,000

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 04B-10 Allocate service department costs to operating departments using the direct method
Level: Medium

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Chapter 04 Appendix B: service department allocations

19. Assume that Uinta allocates service department costs by the step-down method, starting
with Department 1. The total overhead costs allocated from Department 1 to Department X
are:
A. $12,115
B. $21,000
C. $24,000
D. $33,600

Allocation base for Service Department 1 costs = 12,000 + 14,000 + 16,000 = 42,000
Allocation base for Service Department 2 costs = 3,000 + 2,000 = 5,000

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 04B-11 Allocate service department costs to operating departments using the step-down method
Level: Medium

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Chapter 04 Appendix B: service department allocations

20. Assume that Uinta allocates service department costs by the step-down method, starting
with Department 1. The total overhead costs allocated from Department 2 to Department Y
are:
A. $18,000
B. $24,000
C. $21,000
D. $25,200

Allocation base for Service Department 1 costs = 12,000 + 14,000 + 16,000 = 42,000
Allocation base for Service Department 2 costs = 3,000 + 2,000 = 5,000

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 04B-11 Allocate service department costs to operating departments using the step-down method
Level: Medium

The Grand Company has budgeted departmental costs and operating activity in its four
departments for the coming year as follows:

The company does not distinguish between fixed and variable service department costs.
Custodial costs are allocated on the basis of square feet occupied. Repair costs are allocated
on the basis of the number of repair requests.

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Chapter 04 Appendix B: service department allocations

21. Assume Grand uses the direct allocation method. After all allocations, how much of the
company's total overhead cost will be charged to the Production Department for the coming
year?
A. $43,400
B. $46,200
C. $45,941
D. $41,728

Allocation base for Custodial costs = 1,200 + 3,600 = 4,800

Allocation base for Repair costs = 220 + 100 = 320

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 04B-10 Allocate service department costs to operating departments using the direct method
Level: Medium

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Chapter 04 Appendix B: service department allocations

22. Assume Grand uses the step-down allocation method with Custodial costs allocated first.
After all allocations, how much of the company's total overhead cost will be charged to the
company's Finishing Department for the coming year?
A. $57,274
B. $55,184
C. $59,777
D. $56,854

Allocation base for Custodial costs = 200 + 1,200 + 3,600 = 5,000

Allocation base for Repair costs = 220 + 100 = 320

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 04B-11 Allocate service department costs to operating departments using the step-down method
Level: Medium

Reddin Corporation has two service departments, Administrative and Facilities, and two
operating departments, Assembly and Customer Solutions.

The company uses the direct method to allocate service department costs to operating
departments. Administrative costs are allocated on the basis of employee hours and Facilities
costs are allocated on the basis of space occupied.

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Chapter 04 Appendix B: service department allocations

23. The total amount of Administrative Department cost allocated to the Assembly
Department is closest to:
A. $20,991
B. $29,484
C. $23,460
D. $23,009

Allocation base for Administrative costs = 34,000 + 17,000 = 51,000

Allocation base for Facilities costs = 31,000 + 6,000 = 37,000

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 04B-10 Allocate service department costs to operating departments using the direct method
Level: Easy

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Chapter 04 Appendix B: service department allocations

24. The total Customer Solutions Department cost after the allocations of service department
costs is closest to:
A. $674,310
B. $686,040
C. $683,705
D. $686,473

Allocation base for Administrative costs = 34,000 + 17,000 = 51,000

Allocation base for Facilities costs = 31,000 + 6,000 = 37,000

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 04B-10 Allocate service department costs to operating departments using the direct method
Level: Easy

President Clinic has two service departments, Administrative and Support, and two operating
departments, Adult Medicine and Pediatrics.

The clinic uses the direct method to allocate service department costs to operating
departments. Administrative Department costs are allocated on the basis of employee hours
and Support Department costs are allocated on the basis of space occupied in square feet.

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Chapter 04 Appendix B: service department allocations

25. The total amount of Administrative Department cost allocated to the Adult Medicine
Department is closest to:
A. $28,368
B. $31,096
C. $43,235
D. $32,340

Allocation base for Administrative costs = 33,000 + 17,000 = 50,000

Allocation base for Support costs = 30,000 + 4,000 = 34,000

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 04B-10 Allocate service department costs to operating departments using the direct method
Level: Easy

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Chapter 04 Appendix B: service department allocations

26. The total Pediatrics Department cost after the allocations of service department costs is
closest to:
A. $475,220
B. $491,880
C. $488,839
D. $491,683

Allocation base for Administrative costs = 33,000 + 17,000 = 50,000

Allocation base for Support costs = 30,000 + 4,000 = 34,000

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 04B-10 Allocate service department costs to operating departments using the direct method
Level: Easy

Brannigan Corporation uses the direct method to allocate service department costs to
operating departments. The company has two service departments, Information Technology
and Personnel, and two operating departments, Fabrication and Customization.

Information Technology Department costs are allocated on the basis of computer workstations
and Personnel Department costs are allocated on the basis of employees.

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Chapter 04 Appendix B: service department allocations

27. The total amount of Information Technology Department cost allocated to the two
operating departments is closest to:
A. $141,772
B. $26,749
C. $30,820
D. $22,503

Information Technology costs to be allocated = $30,820

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 04B-10 Allocate service department costs to operating departments using the direct method
Level: Easy

28. The total Fabrication Department cost after service department allocations is closest to:
A. $604,655
B. $606,735
C. $599,122
D. $602,460

Allocation base for Information Technology costs = 47 + 45 = 92

Allocation base for Support costs = 70 + 41 = 111

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 04B-10 Allocate service department costs to operating departments using the direct method
Level: Easy

23/44
Chapter 04 Appendix B: service department allocations

Enzor Surgical Hospital uses the direct method to allocate service department costs to
operating departments. The hospital has two service departments, Information Technology
and Administration, and two operating departments, Surgery and Recovery.

Information Technology Department costs are allocated on the basis of computer workstations
and Administration Department costs are allocated on the basis of employees.

29. The total amount of Information Technology Department cost allocated to the two
operating departments is closest to:
A. $23,841
B. $29,414
C. $113,244
D. $19,695

Information Technology costs to be allocated = $29,414

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 04B-10 Allocate service department costs to operating departments using the direct method
Level: Easy

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Chapter 04 Appendix B: service department allocations

30. The total Surgery Department cost after service department allocations is closest to:
A. $500,818
B. $498,775
C. $494,416
D. $503,713

Allocation base for Information Technology costs = 40 + 37 = 77

Allocation base for Administration costs = 61 + 32 = 93

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 04B-10 Allocate service department costs to operating departments using the direct method
Level: Easy

Goodland Corporation uses the step-down method to allocate service department costs to
operating departments. The company has two service departments, Service Department A and
Service Department B, and two operating departments, Operating Department X and
Operating Department Y. Data concerning those departments follow:

Service Department A costs are allocated first on the basis of allocation base A and Service
Department B costs are allocated second on the basis of allocation base B.

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Chapter 04 Appendix B: service department allocations

31. In the first step of the allocation, the amount of Service Department A cost allocated to the
Operating Department X is closest to:
A. $9,760
B. $20,608
C. $19,800
D. $18,032

Allocation base for Service Department A costs = 2,000 + 33,000 + 16,000 = 51,000
Allocation base for Service Department B costs = 31,000 + 8,000 = 39,000

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 04B-11 Allocate service department costs to operating departments using the step-down method
Level: Easy

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Chapter 04 Appendix B: service department allocations

32. The total Operating Department Y cost after allocations is closest to:
A. $423,352
B. $425,820
C. $416,220
D. $425,966

Allocation base for Service Department A costs = 2,000 + 33,000 + 16,000 = 51,000
Allocation base for Service Department B costs = 31,000 + 8,000 = 39,000

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 04B-11 Allocate service department costs to operating departments using the step-down method
Level: Easy

Ponce Corporation, a manufacturer, uses the step-down method to allocate service

department costs to operating departments. The company has two service departments,
Administration and Facilities, and two operating departments, Assembly and Finishing. Data
concerning those departments follow:

Administration Department costs are allocated first on the basis of labor hours and Facilities
Department costs are allocated second on the basis of space occupied.

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Chapter 04 Appendix B: service department allocations

33. In the first step of the allocation, the amount of Administration Department cost allocated
to the Assembly Department is closest to:
A. $19,515
B. $22,370
C. $21,330
D. $10,040

Allocation base for Administration costs = 2,000 + 27,000 + 14,000 = 43,000

Allocation base for Facilities costs = 34,000 + 9,000 = 43,000

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 04B-11 Allocate service department costs to operating departments using the step-down method
Level: Easy

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Chapter 04 Appendix B: service department allocations

34. The total Finishing Department cost after allocations is closest to:
A. $515,170
B. $510,933
C. $504,110
D. $515,379

Allocation base for Administration costs = 2,000 + 27,000 + 14,000 = 43,000

Allocation base for Facilities costs = 34,000 + 9,000 = 43,000

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 04B-11 Allocate service department costs to operating departments using the step-down method
Level: Easy

Duda Clinic uses the step-down method to allocate service department costs to operating
departments. The clinic has two service departments, Personnel and Information Technology
(IT), and two operating departments, Family Medicine and Geriatric Medicine. Data
concerning those departments follow:

Personnel costs are allocated first on the basis of employees and IT costs are allocated second
on the basis of PCs.

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Chapter 04 Appendix B: service department allocations

35. In the first step of the allocation, the amount of Personnel Department cost allocated to the
Family Medicine Department is closest to:
A. $17,804
B. $20,296
C. $37,408
D. $18,700

Allocation base for Personnel costs = 25 + 110 + 183 = 318

Allocation base for IT costs = 81 + 136 = 217

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 04B-11 Allocate service department costs to operating departments using the step-down method
Level: Easy

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Chapter 04 Appendix B: service department allocations

36. The total Geriatric Medicine Department cost after allocations is closest to:
A. $163,616
B. $188,179
C. $194,726
D. $194,717

Allocation base for Personnel costs = 25 + 110 + 183 = 318

Allocation base for IT costs = 81 + 136 = 217

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 04B-11 Allocate service department costs to operating departments using the step-down method
Level: Easy

Deardurff Legal Services, LLC, uses the step-down method to allocate service department
costs to operating departments. The firm has two service departments, Personnel and
Information Technology (IT), and two operating departments, Family Law and Corporate
Law. Data concerning those departments follow:

Personnel costs are allocated first on the basis of employees and IT costs are allocated second
on the basis of PCs.

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Chapter 04 Appendix B: service department allocations

37. In the first step of the allocation, the amount of Personnel Department cost allocated to the
Family Law Department is closest to:
A. $20,121
B. $13,937
C. $15,637
D. $14,430

Allocation base for Personnel costs = 24 + 111 + 176 = 311

Allocation base for IT costs = 91 + 163 = 254

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 04B-11 Allocate service department costs to operating departments using the step-down method
Level: Easy

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Chapter 04 Appendix B: service department allocations

38. The total Corporate Law Department cost after allocations is closest to:
A. $417,451
B. $417,540
C. $410,562
D. $394,660

Allocation base for Personnel costs = 24 + 111 + 176 = 311

Allocation base for IT costs = 91 + 163 = 254

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 04B-11 Allocate service department costs to operating departments using the step-down method
Level: Easy

Essay Questions

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Chapter 04 Appendix B: service department allocations

39. Konosh Medical Clinic has two service departments, Building Services and Energy, and
three operating departments, Pediatrics, Geriatrics, and Surgery. Konosh allocates the cost of
Building Services on square footage and Energy on patient days. No distinction is made
between variable and fixed costs. Budgeted operating data for last year follow:

Required:
a. Prepare a schedule to allocate service department costs to operating departments by the
direct method. (Round all dollar amounts to the nearest whole dollar.)
b. Prepare a schedule to allocate service department costs to operating departments by the
step-down method, allocating Building Services first. (Round all dollar amounts to the nearest
whole dollar.)

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Chapter 04 Appendix B: service department allocations

a. Direct Method:
Allocation base for Building Services costs = 6,000 + 18,000 + 12,000 = 36,000
Allocation base for Energy costs = 5,500 + 7,700 + 8,800 = 22,000

b. Step Method:
Allocation base for Building Services costs = 4,000 + 6,000 + 18,000 + 12,000 = 40,000
Allocation base for Energy costs = 5,500 + 7,700 + 8,800 = 22,000

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 04B-10 Allocate service department costs to operating departments using the direct method
Learning Objective: 04B-11 Allocate service department costs to operating departments using the step-down method
Level: Medium

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Chapter 04 Appendix B: service department allocations

40. Voltaire Corporation uses the direct method to allocate service department costs to
operating departments. The company has two service departments, Administrative and
Facilities, and two operating departments, Assembly and Finishing.

Administrative Department costs are allocated on the basis of employee hours and Facilities
Department costs are allocated on the basis of space occupied.
Required:
Allocate the service department costs to the operating departments using the direct method.

Allocation base for Administrative costs = 30,000 + 18,000 = 48,000

Allocation base for Facilities costs = 36,000 + 3,000 = 39,000

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 04B-10 Allocate service department costs to operating departments using the direct method
Level: Easy

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Chapter 04 Appendix B: service department allocations

41. Mask Corporation uses the direct method to allocate its two service department costs to its
two operating departments. Data concerning those departments follow:

Service Department A costs are allocated on the basis of allocation base A and Service
Department B costs are allocated on the basis of allocation base B.
Required:
Allocate the service department costs to the operating departments using the direct method.

Allocation base for Service Department A costs = 21,000 + 14,000 = 35,000

Allocation base for Service Department B costs = 38,000 + 3,000 = 41,000

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 04B-10 Allocate service department costs to operating departments using the direct method
Level: Easy

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Chapter 04 Appendix B: service department allocations

42. The direct method is used by Savela Clinic to allocate its service department costs to its
operating departments. Data concerning those departments follow:

Information Technology costs are allocated on the basis of computers and Personnel costs are
allocated on the basis of employees.
Required:
Allocate the service department costs to the operating departments using the direct method.

Allocation base for Information Technology costs = 55 + 38 = 93

Allocation base for Personnel costs = 103 + 37 = 140

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 04B-10 Allocate service department costs to operating departments using the direct method
Level: Easy

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Chapter 04 Appendix B: service department allocations

43. Essex Consultancy uses the direct method to allocate its service department costs to its
operating departments. The company has two service departments, Information Technology
and Administration, and two operating departments, Corporate Practice and Government
Practice. Data concerning those departments follow:

Information Technology Department costs are allocated on the basis of computers and
Administration Department costs are allocated on the basis of employees.
Required:
Allocate the service department costs to the operating departments using the direct method.

Allocation base for Information Technology costs = 49 + 49 = 98

Allocation base for Administration costs = 78 + 41 = 119

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 04B-10 Allocate service department costs to operating departments using the direct method
Level: Easy

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Chapter 04 Appendix B: service department allocations

44. Flinders Company has two service departments, Factory Administration and Maintenance,
and two operating departments. Selected information relating to these departments is given
below:

The company allocates service department costs by the step-down method. Factory
Administration costs are allocated first on the basis of number of employees, and then
Maintenance costs are allocated on the basis of total labor hours.
Required:
Prepare a schedule showing the allocation of service department costs to other departments.

Allocation base for Factory Administration costs = 5 + 40 + 60 = 105

Allocation base for Maintenance costs = 80,000 + 120,000 = 200,000

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 04B-11 Allocate service department costs to operating departments using the step-down method
Level: Medium

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Chapter 04 Appendix B: service department allocations

45. Vitro Corporation has two service departments, Service Department A and Service
Department B, and two operating departments, Operating Department X and Operating
Department Y.

The company uses the step-down method to allocate service department costs to operating
departments. Service Department A costs are allocated first on the basis of allocation base A
and Service Department B costs are allocated second on the basis of allocation base B.
Required:
Allocate the service department costs to the operating departments using the step-down
method.

Allocation base for Service Department A costs = 1,000 + 23,000 + 19,000 = 43,000
Allocation base for Service Department B costs = 33,000 + 1,000 = 34,000

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 04B-11 Allocate service department costs to operating departments using the step-down method
Level: Easy

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Chapter 04 Appendix B: service department allocations

46. Sobczynski Corporation uses the step-down method to allocate service department costs to
operating departments. The company has two service departments, Administration and
Facilities, and two operating departments, Assembly and Finishing.

Administration Department costs are allocated first on the basis of employee time and
Facilities Department costs are allocated second on the basis of space occupied.
Required:
Allocate the service department costs to the operating departments using the step-down
method.

Allocation base for Administration Department costs = 1,000 + 30,000 + 16,000 = 47,000
Allocation base for Facilities Department costs = 33,000 + 7,000 = 40,000

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 04B-11 Allocate service department costs to operating departments using the step-down method
Level: Easy

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Chapter 04 Appendix B: service department allocations

47. Grahe Emergency Care Hospital uses the step-down method to allocate service
department costs to operating departments. The hospital has two service departments,
Administration and Information Technology (IT), and two operating departments, Emergency
Room and Intensive Care.

Administration Department costs are allocated first on the basis of employees and IT
Department costs are allocated second on the basis of computers.
Required:
Allocate the service department costs to the operating departments using the step-down
method.

Allocation base for Administration Department costs = 4 + 180 + 87 = 271

Allocation base for IT Department costs = 72 + 60 = 132

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 04B-11 Allocate service department costs to operating departments using the step-down method
Level: Easy

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Chapter 04 Appendix B: service department allocations

48. Chrisler Natal Clinic uses the step-down method to allocate service department costs to
operating departments. The clinic has two service departments, Administration and
Information Technology (IT), and two operating departments, Prenatal Care and Postnatal
Care.

Administration Department costs are allocated first on the basis of employees and IT
Department costs are allocated second on the basis of computers.
Required:
Allocate the service department costs to the operating departments using the step-down
method.

Allocation base for Administration Department costs = 4 + 123 + 61 = 188

Allocation base for IT Department costs = 39 + 44 = 83

AACSB: Analytic
AICPA BB: Critical Thinking
AICPA FN: Measurement
Bloom's: Application
Learning Objective: 04B-11 Allocate service department costs to operating departments using the step-down method
Level: Easy

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