Service Cost Allocation

1. CPA Corporation distributes service department overhead costs directly to producing departments
without allocation to the other service department. Information for the month of June is as follows:

Service Departments
Maintenance Utilities
Overhead costs incurred P 20,000 P 10,000
Service provided to departments:
Maintenance - 10%
Utilities 20% -
Producing – A 40% 30%
Producing – B 40% 60%
Totals 100% 100%

What is the amount of maintenance department costs distributed to Producing A department for
June?

2. BATIKAN Corporation allocates support department cost to its individual schools using the step
method. Information for May 2011 is as follows:

Support Departments
Maintenance Power
Costs incurred P 99,000 P 54,000
Service percentages provided to:
Maintenance - 10%
Power 20% -
School of Education 30% 20%
School of Technology 50% 70%
Totals 100% 100%

What is the amount of May 2011 support department costs allocated to School of Education?

3. ASTIG Company has two service departments (A and B) and two producing departments (X and Y).
Data provided are as follows:

Service Departments Operating Departments

A B X Y
Direct costs P 150 P P300 P 5,000 P 6,000
Services performed by Dept. A 40% 40% 20%
Services performed by Dept. B 20% 70% 10%

ASTIG Company uses direct method to allocate service department costs.

What is the service department cost allocated to Department Y is?

4. Using the same information in No. 3, what is the total cost for department X?
5. Using the same information in No. 3, except that step down is used to allocate service department
costs. Department A costs are allocated first. What is the service department cost allocated to
Department Y?
6. Using the same information in Nos. 3 and 5, what is the total cost for Department X?
7. Using the same information in No. 3, except that the reciprocal method is used to allocate service
department costs. What is the service department cost allocated to Department Y?
8. Using the same information in Nos. 3 and 7, what is the total cost for Department X?

Items 9 and 10 are based on the following information:

Fabricating and Finishing are the two producing departments of a manufacturing company. Building
Operations and Information Services are service departments that provide support to the two
production departments to allocate the service department costs to the production departments.
Square footage is used to allocate building operations and computer time is used to allocation
information services. The costs of the service departments and relevant operating data for the
department are as follows:

Building Information
Fabricating Finishing
Operations Services
Costs:
Labor and benefit costs P 200,000 P 300,000
Other traceable costs 350,000 900,000
Total P 550,000 P 1,200,000
Operating data:
Square feet occupied 5,000 10,000 16,000 24,000
Computer time (in hours) 200 1,200 600

9. If the company employs the direct method to allocate the costs of the service departments, what is
the amount of building operations costs allocated to Fabricating?

10. If the company employs the step method to allocate the costs of the service departments and if
information services costs are allocated first, what is the total amount service department costs
(Information Services and Building Operations) allocated to Finishing?

Answer Key:

1. 10,000.00 6. 5,375.00
2. 46,100.00 7. 84.78 or 85.00
3. 87.50 8. 5,085.00
4. 5,295.83 9. 220,000.00
5. 75.00 10. 762,000.00