5.) Salsa has two service departments, the IT Department and HR Department. Salsa also has two production departments, the Cutting department and the Mixing Department. The usage of the two service departments output for the year is as follows: User of Service IT HR Cutting Mixing IT 5% 45 % 50 % Provider of Service HR 15% 25 % 60 % The budgeted costs in the two service departments for the year as follows: IT: $ 400,000 HR: $ 600,000 Use a.) direct method, b.) step-down method and c.) reciprocal services method to allocate the budgeted costs of the two service departments to production departments.

5.) Salsa has two service departments, the IT Department and HR Department. Salsa also has two production departments, the Cutting department and the Mixing Department. The usage of the two service departments output for the year is as follows: User of Service IT HR Cutting Mixing IT 5% 45 % 50 % Provider of Service HR 15% 25 % 60 % The budgeted costs in the two service departments for the year as follows: IT: $ 400,000 HR: $ 600,000 Use a.) direct method, b.) step-down method and c.) reciprocal services method to allocate the budgeted costs of the two service departments to production departments.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Overheads

In cost accounting, overhead refers to those expenses which occur during the operating of a business. Overhead includes the fixed, variable, or semi-variable which is not directly involved with a company product or service. It is very important to analyze overhead expense as it helps the company in determining how much a company must charge for its products and services so that they can generate profit. Overhead expenses depend upon the nature of the business operations.

Question

5.) Salsa has two service departments, the IT Department and HR Department. Salsa also has two production
departments, the Cutting department and the Mixing Department. The usage of the two service departments
output for the year is as follows:
User of Service
IT
HR
Cutting
Mixing
IT
5%
45 %
50 %
Provider of Service
HR
15%
25%
60 %
The budgeted costs in the two service departments for the year as follows:
IT: $ 400,000
HR: $ 600,000
Use a.) direct method, b.) step-down method and c.) reciprocal services method to allocate the budgeted
costs of the two service departments to production departments.

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Step 1: Explain Cost allocation

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Step 2: Compute cost allocation-Direct method

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Step 3: Compute cost allocation-Step-down method

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Step 4: Compute cost allocation-Reciprocal method

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