Finance Group Project (Word)
docx
keyboard_arrow_up
School
Humber College *
*We aren’t endorsed by this school
Course
4501
Subject
Accounting
Date
Apr 3, 2024
Type
docx
Pages
5
Uploaded by MajorCrownMongoose16
EAGAN FAMILY PRACTICE is a medical practice with four locations in the Minneapolis/St. Paul area. The clinical staff consists of 20 physicians—all of whom practice in one or more areas of family medicine—and 46 advanced practice providers and nurses. Eagan is organized
into three patient services departments: Adult Medicine, Obstetrics, and Pediatrics. Supporting these patient service departments are three support departments: Administration, Facilities, and Finance. Exhibit 7.1 shows Eagan's summary revenue and cost projections by the department for the coming year.
As part of a much-needed overhaul of the cost allocation process, Eagan contracted with a major accounting firm to estimate the amount of services provided by the support departments
to each other and to each patient service department. The intent of the study was to provide data that would help Eagan develop a better cost allocation system to replace the outdated, arbitrary system currently in use. The results of this study are shown in exhibit 7.2. Although expressed as percentages of the total dollar amount of support provided to other departments (instead of the more typical cost allocation rates), the data in exhibit 7.2 are based on an extensive study using sound managerial accounting techniques. Thus, both senior management and department heads at Eagan are comfortable with the resulting allocation
percentages. (Hint: To ensure that you apply the percentages properly in your analysis, pay attention to Note 2 at the bottom of exhibit 7.2.)
The second step in the cost allocation process improvement initiative is to choose the allocation method. Four allocation methods are under consideration: direct, step-down, double
apportionment, and reciprocal. Jerry Silverman, Eagan's chief financial officer, has asked Ashley Matson, the administrative resident at Eagan, to conduct a study and make a recommendation on the best allocation method. This task can be approached in several ways,
but Ashley has decided to examine by doing. She plans to use the data in exhibits 7.1 and 7.2
to determine the overhead cost allocations under each allocation method. Afterward, she can compare and contrast the results.
Of course, the final decision cannot be made without considering the costs involved in implementing each allocation method. When Ashley asked Jerry about the costs
inherent in each allocation method, Jerry said,
“I don't know! Assume that the direct method is
the least costly, the reciprocal method is the most costly, and the other two fall somewhere in between.” He also expects Ashley to make some judgments on the relative profitability of the patient services departments under the recommended allocation system.
Ashley began her analysis by reviewing the allocation methods presented in her old healthcare finance textbook. She had no problem remembering basic cost allocation concepts, but she did hit two snags. The first problem was that the textbook did not describe the
double apportionment method. However, after a little research, Ashley discovered that the
double apportionment method is a slightly more complicated version of the step-down method. In the first apportionment, support provided by each service department to the other service departments as well as to the patient services departments is recognized. Because some costs remain in the support departments after the first apportionment, a second apportionment, which applies the step-down method, moves all remaining support department costs to the patient services departments. Thus, in the double apportionment method, service department support to all other service departments is recognized, whereas, in the pure step-down method, service department support is recognized only to “downstream” service departments.
Here's how Ashley assumed that the double apportionment method would be applied to Eagan. (There are alternative ways in which this allocation method can be applied.) First, direct Administration costs would be allocated to the other five departments (two support and three patient services). Second, direct Facilities costs would be allocated to all other departments (including Administration and Finance). Third, direct Finance costs would be allocated to all other departments (including Administration and Facilities).
After these three allocations are completed, the first apportionment is finished. Some costs remain in the support departments—the intra-support department allocations from the first apportionment—so a second apportionment is necessary. The second apportionment is conducted using the step-down method as it is normally applied, except that the application of the first apportionment means that the starting cost pool values are much lower.
The second problem Ashley faced was that she did not know how to perform the reciprocal allocation. One method is to use simultaneous equations—but higher mathematics has never
been Ashley's strong suit—and another method uses an iterative approach. Fortunately, Ashley had recently read an article in Accounting Monthly discussing an Excel model that uses the iterative approach to perform the reciprocal allocation. To help with the analysis, Ashley modified the magazine's model by using Eagan's numbers to calculate the allocation not only for the reciprocal method but also for the other three methods.
Your preview ends here
Eager to read complete document? Join bartleby learn and gain access to the full version
- Access to all documents
- Unlimited textbook solutions
- 24/7 expert homework help
Put yourself in Ashley's shoes. Complete her assigned task and prepare a report to present to
Eagan's executive committee. In addition, assess the sensitivity of the results to (1) the relative sizes of the direct costs at each support department and (2) the amount of support provided by the support departments to each other. Exhibit 7.3 contains the values that you may use in your sensitivity analysis.
Case Questions:
1.
Briefly describe the differences in the four allocation methods discussed in the case. (Hint: Don’t discuss the mathematics of the schemes but rather how they
differ conceptually.) Which of the four methods is conceptually best? 2.
What are the allocations to each patient services department, and resulting profitability, under the four allocation methods using the base case cost amounts (exhibit 7.1) and allocation rates (Exhibit 7.2). 3.
Consider the sensitivity of the results to changes in the values of the overhead cost pools. Repeat Question 2, but now use the overhead cost pool
amounts from the first section of exhibit 7.3 along with the base case allocation percentages contained in exhibit 7.2. (Note that there are two different overhead cost pool amounts—Calculation 1 and Calculation 2.) 4.
Consider the sensitivity of the results to changes in the allocation
percentages. Repeat Question 2, but now use the percentages from exhibit
7.3 along with the base case overhead cost pool amounts given in exhibit 7.1.
5.
What is your recommendation regarding the appropriate cost allocation
method for the practice?
Related Documents
Related Questions
Solomon Information Services, Incorporated, has two service departments: human resources and billing. Solomon's operating
departments, organized according to the special Industry each department serves, are health care, retall, 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.
Number of employees
Annual cost*
Annual revenue
Req A1
Department
Human Resources
Billing
Health Care
Retail
Req A2
Legal Services
Total
20
$ 900,000
Complete this question by entering your answers in the tabs below.
Allocation
Rate
Req B1
*This is the operating cost before allocating service department costs.
Required
a. Allocate service department costs to operating departments, assuming that Solomon adopts the step method. The company uses
the number of employees as the base for allocating human resources department costs and department…
arrow_forward
Solomon Information Services, Incorporated, has two service departments: human resources and billing. Solomon's operating
departments, organized according to the special Industry each department serves, are health care, retall, 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.
Number of employees
Annual cost
Annual revenue
Req A1
Human Resources
Department
Reg A2
Billing
Health Care
Retail
Legal Services
Total
*This is the operating cost before allocating service department costs.
Allocation
Rate
20
Req B1
$ 900,000
Complete this question by entering your answers in the tabs below.
x
X
Billing
Required
a. Allocate service department costs to operating departments, assuming that Solomon adopts the step method. The company uses
the number of employees as the base for allocating human resources department costs and…
arrow_forward
Manji
arrow_forward
Gadubhai
arrow_forward
usha
arrow_forward
Comprehensive Insurance Company has three operating departments: claims processing, administration, and sales. These three
operating departments are supported by two service departments: information technology and accounting. The support provided by
information technology and accounting to the other departments is shown below.
Operating Departments
Sales
Total costs
Information technology
Accounting
The total costs incurred in the five departments are:
Information technology
Accounting
Claims processing
Administration
a. Direct Method
b.
Service Departments
Step Method (Info Tech First)
Step Method (Accounting First)
Information
Technology
10%
c. Reciprocal Method
Accounting
20%
$ 579,000
1,580,000
270,000
551,000
600,000
$ 3,580,000
Required:
Determine the total costs in each of the three operating departments, after departmental allocations, using (a) the direct method, (b)
the step method (first for information technology going first in the allocation and then for accounting going…
arrow_forward
Comprehensive Insurance Company has two product lines, health insurance and auto insurance. The two product lines are served by
three operating departments, which are necessary for providing the two types of products: claims processing, administration, and
sales. These three operating departments are supported by two departments: Information technology and operations. The support
provided by information technology and operations to the other departments is shown below.
Operating Departments
Information technology.
Operations
Information technology
Operations
Claims processing
Sales
The total costs incurred in the five departments are:
Total costs
Support Departments
a
Direct Method
b. Step Method (Info Tech First)
Step Method (Operations First)
Information
Technology
10%
c Reciprocal Method
Operations
20%
$ 567,000
1,550,000
340,000
550,000
580,000
$3,587,000
Required:
Determine the total costs in each of the three operating departments, after departmental allocations, using (a) the…
arrow_forward
Vala
arrow_forward
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.
Health
Legal
Services
Human
Resources
Billing
Care
Retail
Number of employees
10
20
80
60
40
Annual cost*
$720,000
$1,428,000
$6,000,000
$9,000,000
$4,800,000
$6,200,000
$2,800,000
$4,800,000
Annual revenue
*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…
arrow_forward
Kolinski 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.
Service Departments
Operating Department
Tele communications
Administration
Surgery
Recovery
$ 26,344
$ 27,472
$ 282,750
$ 599,690
Departmental costs
Telecommunications ports
Employees
31
14
40
34
30
11
74
27
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:
Multiple Choice
$317,118
$314,853
$310,244
$305,921
arrow_forward
es
Comprehensive Insurance Company has two product lines: health insurance and auto insurance. The two product lines are served by
three operating departments, which are necessary for providing the two types of products: claims processing, administration, and
sales. These three operating departments are supported by two departments: information technology and operations. The support
provided by information technology and operations to the other departments is shown below.
Operating Departments
Information technology
Operations
The total costs incurred in the five departments are:
Information technology
Operations
Claims processing
Administration
Sales
C.
Total costs
a. Direct Method
b.
Support Departments
Information
Technology Operations
20%
Step Method (Info Tech First)
Step Method (Operations First)
Reciprocal Method
10%
$ 577,000
1,530,000
350,000
627,000
550,000
$ 3,634,000
Required:
Determine the total costs in each of the three operating departments, after departmental…
arrow_forward
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
Health
Legal
Resources
Billing
Care
Retail
Services
Number of employees
10
20
80
60
40
Annual cost*
$4,800,000
$6,200,000
$720,000
$1,428,000
$6,000,000
$9,000,000
$2,800,000
$4,800,000
Annual revenue
*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…
arrow_forward
Compton Information Services, Inc., has two service departments: human resources and billing. Compton's operating departmen
organized according to the special industry each department serves, are health care, retail, and legal services. The billing depart
supports only the three operating departments, but the human resources department supports all operating departments and th
billing department. Other relevant information follows.
Number of employees
Annual cost*
Annual revenue
Req A1
Human
Resources
10
$720,000
Department
Req A2
Health Care
Retail
Legal Services
Total
Complete this question by entering your answers in the tabs below.
Req B1
Allocation
Rate
*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
the number of employees as the base for allocating human resources department costs and department annual revenue as th
base for…
arrow_forward
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.
Health
Legal
Services
Human
Resources
Billing
Care
Retail
Number of employees
Annual cost*
10
20
80
60
40
$6,000,000
$9,000,000
$720,000
$1,428,000
$4,800,000
$6,200,000
$2,800,000
$4,800,000
Annual revenue
*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…
arrow_forward
Comprehensive Insurance Company has two product lines: health insurance and auto insurance. The two product lines are served by
three operating departments, which are necessary for providing the two types of products: claims processing, administration, and
sales. These three operating departments are supported by two departments: information technology and operations. The support
provided by information technology and operations to the other departments is shown below.
Information technology
Operations
Support Departments
Operating Departments
Information
Technology
Operations
20%
Claims Processing
20%
Administration
Sales
40%
20%
10%
10
50
30
The total costs incurred in the five departments are:
Information technology
Operations
Administration
Claims processing
Sales
Total costs
$ 579,000
1,580,000
270,000
551,000
600,000
$ 3,580,000
Required:
Determine the total costs in each of the three operating departments, after departmental allocations, using
(a) the direct method,
(b) the step…
arrow_forward
Comprehensive Insurance Company has two product lines: health insurance and auto Insurance. The two product lines are served by
three operating departments, which are necessary for providing the two types of products: claims processing, administration, and
sales. These three operating departments are supported by two departments: information technology and operations. The support
provided by information technology and operations to the other departments is shown below.
Information technology
Operations
Support Departments
Information
Operating Departments
Claims
Technology
Operations
20%
Processing
20%
Administration
48%
Sales
20%
10%
10
50
30
The total costs incurred in the five departments are:
Information technology
Operations
Claims processing
Administration
Sales
Total costs
$ 578,000
1,780,000
290,000
630,000
650,000
$ 3,928,000
Required:
Determine the total costs in each of the three operating departments, after departmental allocations, using (a) the direct method, (b)
the step…
arrow_forward
Uramilaben
arrow_forward
Technology (IT), and two operating departments, Family Medicine and Pediatrics. Data concerning those departments follow:
Service Departments
Operating Department
Family
Information
Personnel
Technology
$ 45,995
Medicine
Pediatrics
$ 86,184
$ 608,130
$ 316,290
Departmental costs
Employees
18
26
128
188
Personnel costs
19
26
125
156
Personnel costs are allocated first on the basis of employees and Information Technology costs are allocated second on the basis of Personnel costs. The total Pediatrics Department cost
after allocations is closest to:
Multiple Choice
$345,462
$393,099
$392,838
$383,307
arrow_forward
please answer within the format by providing formula the detailed workingPlease provide answer in text (Without image)Please provide answer in text (Without image)Please provide answer in text (Without image)
arrow_forward
Compton Information Services, Inc., has two service departments: human resources and billing. Compton's operating departmen
organized according to the special industry each department serves, are health care, retail, and legal services. The billing depart
supports only the three operating departments, but the human resources department supports all operating departments and th
billing department. Other relevant information follows.
Number of employees
Annual cost*
Annual revenue
Req A1
Department
Billing
Human
Resources
10
$720,000 $1,428,000 $6,000,000
Billing
Health Care
Retail
Complete this question by entering your answers in the tabs below.
Req A2
Legal Services
Total
*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
the number of employees as the base for allocating human resources department costs and department annual revenue as…
arrow_forward
A Community Hospital has two (2) service departments: Maintenance and Food Services. The hospital has three (3) patient care units, namely: General Medicine, OB, and Surgery.
Additional information are as follows:
Amount of cost to be allocated:
Maintenance
P 8,000,000
Food Services
P 3,000,000
Allocation method:
Maintenance Costs are allocated based on square foot assigned to the
Food Service Costs are allocated based on number of meals served to the
EXPECTED UTILIZATION RATES
SQ. FT.
Meals Served
Food Services
10,000
30,000
Maintenance
10,000
10,000
Surgery
20,000
40,000
OB
30,000
30,000
General Medicine
30,000
90,000
TOTAL
100,000
200,000
Using the information, allocate the costs of the two (2) service departments with the three (3) patient care units using: Direct Method, Step Method – Maintenance First, Step Method – Food Services First, and Reciprocal Method.
arrow_forward
Compton Information Services, Inc., has two service departments: human resources and billing. Compton's operating departmen
organized according to the special industry each department serves, are health care, retail, and legal services. The billing depart
supports only the three operating departments, but the human resources department supports all operating departments and th
billing department. Other relevant information follows.
Number of employees
Annual cost*
Annual revenue
Req A1
Billing
Human
Resources
10
$720,000 $1,428,000 $6,000,000
Department
Req A2
Health Care
Retail
Legal Services
Total
Complete this question by entering your answers in the tabs below.
Req B1
*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
the number of employees as the base for allocating human resources department costs and department annual revenue as…
arrow_forward
Compton Information Services, Inc., has two service departments: human resources and billing. Compton's operating departmen
organized according to the special industry each department serves, are health care, retail, and legal services. The billing depart
supports only the three operating departments, but the human resources department supports all operating departments and th
billing department. Other relevant information follows.
Number of employees
Annual cost*
Annual revenue
Req A1
Billing
Human
Resources
10
$720,000 $1,428,000 $6,000,000
Department
Req A2
Health Care
Retail
Legal Services
Total
Complete this question by entering your answers in the tabs below.
Req B1
Human
Resources
*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
the number of employees as the base for allocating human resources department costs and department…
arrow_forward
MedServices Inc. is divided into two operating departments: Laboratory and Tissue Pathology.The company allocates delivery and accounting costs to each operating department. Deliverycosts include the costs of a fleet of vans and drivers that drive throughout the state each day toclinics and doctors’ offices to pick up samples and deliver them to the centrally located laboratory and tissue pathology offices. Delivery costs are allocated on the basis of number of samples. Accounting costs are allocated on the basis of the number of transactions processed. Noeffort is made to separate fixed and variable costs; however, only budgeted costs are allocated.Allocations for the coming year are based on the following data:
Required:1. Assign the support department costs by using the direct method. (Note: Round allocationratios to four decimal places.)2. Assign the support department costs by using the sequential method, allocatingaccounting costs first. (Note: Round allocation ratios to four…
arrow_forward
Toledo Clinic has two patient services departments: Adult Services and Pediatric Services The
patient services departments are supported by General Administration, Facilities, and Financial
Services. The General Administration Department of Toledo Clinic has compiled the following
information:
Department
General
Administration
Facilities
Financial Services
Adult Services
Pediatric Services
O $420,000
O $280,000
Direct Costs
$700,000
Ⓒ$700,000
$300,000
$1,000,000
$3,600,000
$4,400,000
Square Feet
4,000
O Can't tell from the information provided
1,000
5,000
42.000
48,000
Toledo Clinic has determined that the cost driver for General Administration and Financial Services
is salary dollars and that the cost driver for Facilities is square feed. Using the direct method of cost
allocation, what is the allocation of General Administration costs to Adult Services?
Salary Dollars
$1,200,000
$800,000
$2,000,000
$12,000,000
$8,000,000
arrow_forward
The California Community Hospital has two service departments, Cafeteria and Housekeeping, and two operating departments
Surgery and Outpatient. The hospital uses the direct method to allocate service department costs to operating departments. It
allocates Cafeteria costs based on the number of employees.
Outpatient
$360,000
45,000
Cafeteria
Housekeeping
$10,000
15,000
Surgery
$140,000
15,000
Total
Departmental costs before allocation
Number of employees
$40,000
20,000
$550,000
Knowledge Check 01
How much Cafeteria cost should be allocated to the Surgery department?
$6,316
$8,000
$30,000
O $10,000
arrow_forward
Please do not give image format
arrow_forward
The Housekeeping Department of Micanopy Hospital has direct costs of $500,000. The hospital's four patient service departments utilize the following amounts of space:Department A = 1,000 square feetDepartment B = 2,000 square feetDepartment C = 3,000 square feetDepartment D = 4,000 square feet
Assuming that the cost driver for housekeeping costs is the amount of occupied space, what is the allocation of housekeeping costs to each department?
Show all work. ....typing only
arrow_forward
SEE MORE QUESTIONS
Recommended textbooks for you
Accounting
Accounting
ISBN:9781337272094
Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:Cengage Learning,
Accounting Information Systems
Accounting
ISBN:9781337619202
Author:Hall, James A.
Publisher:Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis...
Accounting
ISBN:9780134475585
Author:Srikant M. Datar, Madhav V. Rajan
Publisher:PEARSON
Intermediate Accounting
Accounting
ISBN:9781259722660
Author:J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:9781259726705
Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:McGraw-Hill Education
Related Questions
- Solomon Information Services, Incorporated, has two service departments: human resources and billing. Solomon's operating departments, organized according to the special Industry each department serves, are health care, retall, 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. Number of employees Annual cost* Annual revenue Req A1 Department Human Resources Billing Health Care Retail Req A2 Legal Services Total 20 $ 900,000 Complete this question by entering your answers in the tabs below. Allocation Rate Req B1 *This is the operating cost before allocating service department costs. Required a. Allocate service department costs to operating departments, assuming that Solomon adopts the step method. The company uses the number of employees as the base for allocating human resources department costs and department…arrow_forwardSolomon Information Services, Incorporated, has two service departments: human resources and billing. Solomon's operating departments, organized according to the special Industry each department serves, are health care, retall, 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. Number of employees Annual cost Annual revenue Req A1 Human Resources Department Reg A2 Billing Health Care Retail Legal Services Total *This is the operating cost before allocating service department costs. Allocation Rate 20 Req B1 $ 900,000 Complete this question by entering your answers in the tabs below. x X Billing Required a. Allocate service department costs to operating departments, assuming that Solomon adopts the step method. The company uses the number of employees as the base for allocating human resources department costs and…arrow_forwardManjiarrow_forward
- Gadubhaiarrow_forwardushaarrow_forwardComprehensive Insurance Company has three operating departments: claims processing, administration, and sales. These three operating departments are supported by two service departments: information technology and accounting. The support provided by information technology and accounting to the other departments is shown below. Operating Departments Sales Total costs Information technology Accounting The total costs incurred in the five departments are: Information technology Accounting Claims processing Administration a. Direct Method b. Service Departments Step Method (Info Tech First) Step Method (Accounting First) Information Technology 10% c. Reciprocal Method Accounting 20% $ 579,000 1,580,000 270,000 551,000 600,000 $ 3,580,000 Required: Determine the total costs in each of the three operating departments, after departmental allocations, using (a) the direct method, (b) the step method (first for information technology going first in the allocation and then for accounting going…arrow_forward
- Comprehensive Insurance Company has two product lines, health insurance and auto insurance. The two product lines are served by three operating departments, which are necessary for providing the two types of products: claims processing, administration, and sales. These three operating departments are supported by two departments: Information technology and operations. The support provided by information technology and operations to the other departments is shown below. Operating Departments Information technology. Operations Information technology Operations Claims processing Sales The total costs incurred in the five departments are: Total costs Support Departments a Direct Method b. Step Method (Info Tech First) Step Method (Operations First) Information Technology 10% c Reciprocal Method Operations 20% $ 567,000 1,550,000 340,000 550,000 580,000 $3,587,000 Required: Determine the total costs in each of the three operating departments, after departmental allocations, using (a) the…arrow_forwardValaarrow_forwardCompton 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. Health Legal Services Human Resources Billing Care Retail Number of employees 10 20 80 60 40 Annual cost* $720,000 $1,428,000 $6,000,000 $9,000,000 $4,800,000 $6,200,000 $2,800,000 $4,800,000 Annual revenue *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…arrow_forward
- Kolinski 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. Service Departments Operating Department Tele communications Administration Surgery Recovery $ 26,344 $ 27,472 $ 282,750 $ 599,690 Departmental costs Telecommunications ports Employees 31 14 40 34 30 11 74 27 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: Multiple Choice $317,118 $314,853 $310,244 $305,921arrow_forwardes Comprehensive Insurance Company has two product lines: health insurance and auto insurance. The two product lines are served by three operating departments, which are necessary for providing the two types of products: claims processing, administration, and sales. These three operating departments are supported by two departments: information technology and operations. The support provided by information technology and operations to the other departments is shown below. Operating Departments Information technology Operations The total costs incurred in the five departments are: Information technology Operations Claims processing Administration Sales C. Total costs a. Direct Method b. Support Departments Information Technology Operations 20% Step Method (Info Tech First) Step Method (Operations First) Reciprocal Method 10% $ 577,000 1,530,000 350,000 627,000 550,000 $ 3,634,000 Required: Determine the total costs in each of the three operating departments, after departmental…arrow_forwardCompton 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 Health Legal Resources Billing Care Retail Services Number of employees 10 20 80 60 40 Annual cost* $4,800,000 $6,200,000 $720,000 $1,428,000 $6,000,000 $9,000,000 $2,800,000 $4,800,000 Annual revenue *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…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
- Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSONIntermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill EducationFinancial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education
Accounting
Accounting
ISBN:9781337272094
Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:Cengage Learning,
Accounting Information Systems
Accounting
ISBN:9781337619202
Author:Hall, James A.
Publisher:Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis...
Accounting
ISBN:9780134475585
Author:Srikant M. Datar, Madhav V. Rajan
Publisher:PEARSON
Intermediate Accounting
Accounting
ISBN:9781259722660
Author:J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:9781259726705
Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:McGraw-Hill Education