Western Services has three service departments: Information Systems (IS), Personnel, and Administration. There are two operatingdepartments: Residential and Commercial. A summary of costs and other data for each department prior to allocation of servicedepartment costs for the latest period follows:DepartmentInformation Systems (IS)PersonnelAdministrationIS1701153,900Number of IS service ticketsNumber of employeesSquare footage occupiedThe costs of the service departments and the allocation basis for each department follow.Direct Cost$ 33,00040,00036,700Personnel2001208,000Administration Residential Commercial1551,4101071383,80016,100Allocation BaseIS service ticketsEmployeesSquare footage occupied.94016269,500Required:a. Assume that the company allocates service department costs to production departments using the direct method. What amount ofInformation Systems (IS) Department costs will be allocated to the Commercial Department?b. Assume the same method of allocation as in requirement (a). What amount of Personnel Department costs is allocated to theResidential Department?c. Assuming that the company allocates service department costs to other departments using the step method (starting withAdministration and then IS), what amount of Administration Department costs is allocated to the IS Department?d. Assume the same method of allocation as in requirement (c). What amount of IS Department costs is allocated to Administration?

Cost allocation is the process of assigning or distributing the costs to different business units,…

a. Assume that the company allocates service department costs to production departments using the direct method. What amount of Information Systems (IS) Department costs will be allocated to the Commercial Department? b. Assume the same method of allocation as in requirement (a). What amount of Personnel Department costs is allocated to the Residential Department? c. Assuming that the company allocates service department costs to other departments using the step method (starting with Administration and then IS), what amount of Administration Department costs is allocated to the IS Department? d. Assume the same method of allocation as in requirement (c). What amount of IS Department costs is allocated to Administration?

a. Assume that the company allocates service department costs to production departments using the direct method. What amount of Information Systems (IS) Department costs will be allocated to the Commercial Department? b. Assume the same method of allocation as in requirement (a). What amount of Personnel Department costs is allocated to the Residential Department? c. Assuming that the company allocates service department costs to other departments using the step method (starting with Administration and then IS), what amount of Administration Department costs is allocated to the IS Department? d. Assume the same method of allocation as in requirement (c). What amount of IS Department costs is allocated to Administration?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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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

Western Services has three service departments: Information Systems (IS), Personnel, and Administration. There are two operating
departments: Residential and Commercial. A summary of costs and other data for each department prior to allocation of service
department costs for the latest period follows:
Department
Information Systems (IS)
Personnel
Administration
IS
170
115
3,900
Number of IS service tickets
Number of employees
Square footage occupied
The costs of the service departments and the allocation basis for each department follow.
Direct Cost
$ 33,000
40,000
36,700
Personnel
200
120
8,000
Administration Residential Commercial
155
1,410
107
138
3,800
16,100
Allocation Base
IS service tickets
Employees
Square footage occupied.
940
162
69,500
Required:
a. Assume that the company allocates service department costs to production departments using the direct method. What amount of
Information Systems (IS) Department costs will be allocated to the Commercial Department?
b. Assume the same method of allocation as in requirement (a). What amount of Personnel Department costs is allocated to the
Residential Department?
c. Assuming that the company allocates service department costs to other departments using the step method (starting with
Administration and then IS), what amount of Administration Department costs is allocated to the IS Department?
d. Assume the same method of allocation as in requirement (c). What amount of IS Department costs is allocated to Administration?

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