a. Mr. Smith, the financial controller of LabAid, is convinced that the step-down method allocates more costs to the operating departments than does the direct method. Do you agree with Mr. Smith? Explain. b. Assume that you are the manager of the Daily Patient department. Discuss which method of cost allocation would you prefer. Justify your decision.
a. Mr. Smith, the financial controller of LabAid, is convinced that the step-down method allocates more costs to the operating departments than does the direct method. Do you agree with Mr. Smith? Explain. b. Assume that you are the manager of the Daily Patient department. Discuss which method of cost allocation would you prefer. Justify your decision.
Managerial Accounting: The Cornerstone of Business Decision-Making
7th Edition
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Chapter10: Standard Costing And Variance Analysis
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a. Mr. Smith, the financial controller of LabAid, is convinced that the step-down method allocates more costs to the operating departments than does the direct method. Do you agree with Mr. Smith? Explain.
b. Assume that you are the manager of the Daily Patient department. Discuss which method of cost allocation would you prefer. Justify your decision.
![LabAid Ltd provides radiological services. Despite the variety of patients seen at LabAid, the
radiological services involve only two operating departments (Daily Patient and Radiology) and two
service departments (Administrative Services and Maintenance Services). For the first quarter of
2022, LabAid incurs the following costs in its four departments:
Department
Overhead costs
Daily Patient
£350,000
Radiology
£300,000
Administrative Services
£50,000
Maintenance Services
£55,000
The actual level of support relationships among the four departments for the first quarter of 2022
was:
Used by
Administrative Maintenance
Daily
Services
Services
Patient
Radiology
Supplied
Administrative
25%
40%
35%
Services
by
Maintenance Services
10%
30%
60%
The Administrative Services support percentages are based on number of employees. The
Maintenance Services support percentages are based on total labour hours.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F95d38321-dd48-4518-8630-435873d249a4%2F2e7d2d0f-483b-4495-b2b4-42a5fb0ff5f9%2Ftkye75_processed.png&w=3840&q=75)
Transcribed Image Text:LabAid Ltd provides radiological services. Despite the variety of patients seen at LabAid, the
radiological services involve only two operating departments (Daily Patient and Radiology) and two
service departments (Administrative Services and Maintenance Services). For the first quarter of
2022, LabAid incurs the following costs in its four departments:
Department
Overhead costs
Daily Patient
£350,000
Radiology
£300,000
Administrative Services
£50,000
Maintenance Services
£55,000
The actual level of support relationships among the four departments for the first quarter of 2022
was:
Used by
Administrative Maintenance
Daily
Services
Services
Patient
Radiology
Supplied
Administrative
25%
40%
35%
Services
by
Maintenance Services
10%
30%
60%
The Administrative Services support percentages are based on number of employees. The
Maintenance Services support percentages are based on total labour hours.
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