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Compton Information Services, Inc., has two service departments: human resources and billing. Compton's operating depart organized according to the special industry each department serves, are health care, retail, and legal services. The billing de supports only the three operating departments, but the human resources department supports all operating departments an billing department. Other relevant information follows. Number of employees Annual cost* Annual revenue Human Resources 10 Health Care Billing $720,000 $1,428,000 $6,000,000 $9,000,000 20 80 *This is the operating cost before allocating service department costs. Retail $4,800,000 $6,200,000 60 Legal Services 40 $2,800,000 $4,800,000

Compton Information Services, Inc., has two service departments: human resources and billing. Compton's operating depart organized according to the special industry each department serves, are health care, retail, and legal services. The billing de supports only the three operating departments, but the human resources department supports all operating departments an billing department. Other relevant information follows. Number of employees Annual cost* Annual revenue Human Resources 10 Health Care Billing $720,000 $1,428,000 $6,000,000 $9,000,000 20 80 *This is the operating cost before allocating service department costs. Retail $4,800,000 $6,200,000 60 Legal Services 40 $2,800,000 $4,800,000

FINANCIAL ACCOUNTING
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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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 allocating the billing department costs. b. Allocate service department costs to operating departments, assuming that Compton adopts the direct method. The company the number of employees as the base for allocating the human resources department costs and department annual revenue a base for allocating the billing department costs. c. Compute the total allocated cost of service centers for each operating department using each allocation method. X X Billing $1,428,000 $6,000,000 X 20 X Req B2 Weight of Base Health Care Allocate service department costs to operating departments, assuming that Compton adopts the direct method. The company uses the department annual revenue as the base for allocating the billing department costs. (Round "Allocation rate" to 4 decimal places.) = = Retail $4,800,000 $9,000,000 $6,200,000 < Req B1 80 $ Req C1 Allocated Cost Req C2 0 60 Req C1 Legal Services > 40 $2,800,000 $4,800,000
Transcribed Image Text: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 allocating the billing department costs. b. Allocate service department costs to operating departments, assuming that Compton adopts the direct method. The company the number of employees as the base for allocating the human resources department costs and department annual revenue a base for allocating the billing department costs. c. Compute the total allocated cost of service centers for each operating department using each allocation method. X X Billing $1,428,000 $6,000,000 X 20 X Req B2 Weight of Base Health Care Allocate service department costs to operating departments, assuming that Compton adopts the direct method. The company uses the department annual revenue as the base for allocating the billing department costs. (Round "Allocation rate" to 4 decimal places.) = = Retail $4,800,000 $9,000,000 $6,200,000 < Req B1 80 $ Req C1 Allocated Cost Req C2 0 60 Req C1 Legal Services > 40 $2,800,000 $4,800,000
Expert Solution
Step 1

Lets understand the basics.

In step method of allocation, service department cost allocated to production department on step basis. Generally department with higher number of service provided to other departments are allocated first.

In direct method, service department cost gets allocated to production department directly and does not get allocated service departments.

 

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