Compton Information Services, Ic., 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* Annual revenue 10 20 80 60 40 $6,000,000 $9,000,000 $4,800,000 $6,200,000 $2,800,000 $4,800,000 $720,000 $1,428,000 *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 the billing department costs. b. Allocate service department costs to operating departments, assuming that Compton adopts the direct method. The company uses the number of employees as the base for allocating the human resources department costs and department annual revenue as the base for allocating the billing department costs. tucing each ation mothod
Compton Information Services, Ic., 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* Annual revenue 10 20 80 60 40 $6,000,000 $9,000,000 $4,800,000 $6,200,000 $2,800,000 $4,800,000 $720,000 $1,428,000 *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 the billing department costs. b. Allocate service department costs to operating departments, assuming that Compton adopts the direct method. The company uses the number of employees as the base for allocating the human resources department costs and department annual revenue as the base for allocating the billing department costs. tucing each ation mothod
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
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Question
Transcribed Image Text: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 the billing department costs.
b. Allocate service department costs to operating departments, assuming that Compton adopts the direct method. The company uses
the number of employees as the base for allocating the human resources department costs and department annual revenue as the
base for allocating the billing department costs.
c. Compute the total allocated cost of service centers for each operating department using each allocation method.
Complete this question by entering your answers in the tabs below.
Req A1
Req A2
Req B1
Req B2
Req C1
Req C2
Allocate service department costs to operating departments, assuming that Compton adopts the step method. The company
uses the department annual revenue as the base for allocating the billing department costs. (Round "Allocation rate" to 3
decimal places.)
Weight of
Base
Allocation
Allocated
Department
Rate
Cost
$ 9,000,000 =
6,200,000 =
Health Care
2$
Retail
Legal Services
4,800,000 =
X
Total
2$
< Req A1
Req B1
>
Expert Solution
Step 1 Introduction
The cost of service department cost can be allocated to different operating departments on the basis of different allocation base using various methods as step method or direct method.
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