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. Human Health Legal Resources Billing Care Retail Services Number of employees 10 20 80 60 40 Annual cost* $6,000,000 $9,000,000 $4,800,000 $6,200,000 $2,800,000 $4,800,000 $720,000 $1,428,000 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.
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. Human Health Legal Resources Billing Care Retail Services Number of employees 10 20 80 60 40 Annual cost* $6,000,000 $9,000,000 $4,800,000 $6,200,000 $2,800,000 $4,800,000 $720,000 $1,428,000 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.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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
10
20
80
60
40
Annual cost*
$720,000
$1,428,000
$6,000,000
$9,000,000
$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 number
employees as the
for allocating
human resources department costs.
Weight of
Base
Allocation
Allocated
Department
Rate
Cost
Billing
20 =
Health Care
X
80 =
Retail
X
60 =
Legal Services
40 =
Total
$
< Req A1
Req A2 >
O o o
%24
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