Direct and step methodsSalado Inc. provides cleaning services through its Residential and Commercial divisions. Support services of the company are provided by Personnel and Administration areas. Costs of these two areas are allocated to the revenue producing departments. Personnel costs are allocated using number of employees; administration costs are allocated using direct department costs. The following annual budgeted information (presented in a benefits-provided ranking) is available: Personnel Administration Residential Commercial Direct costs $140,000 $180,000 $480,000 $800,000 Number of employees 12 30 72 48 Direct labor hours 60,000 90,000 Square feet cleaned 450,000 570,000 a. Using the direct method, allocate the costs of Personnel and Administration to the Residential and Commercial divisions. Total support costs allocated to Residential = Total support costs allocated to Commercial = b. Using the step method, allocate the costs of Personnel and Administration to the Residential and Commercial divisions. Total support costs allocated to Residential = Total support costs allocated to Commercial = c. Salado prices jobs by the direct labor hour for Residential services and by the square foot cleaned for Commercial services. Compute the full cost of providing one direct labor hour of service for Residential and for one square foot cleaned for Commercial using (1) the direct method and (2) the step method.Note: Round your answers to two decimal places (i.e. round $4.555 to $4.56). (1) Direct Method Residential cost per hour of service Commercial cost per square foot cleaned (2) Step Method Residential cost per hour of service Commercial cost per square foot cleaned

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter10: Evaluating Decentralized Operations

Section: Chapter Questions

Problem 6E: Varney Corporation, a manufacturer of electronics and communications systems, allocates Computing...

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Direct and step methods
Salado Inc. provides cleaning services through its Residential and Commercial divisions. Support services of the company are provided by Personnel and Administration areas. Costs of these two areas are allocated to the revenue producing departments. Personnel costs are allocated using number of employees; administration costs are allocated using direct department costs. The following annual budgeted information (presented in a benefits-provided ranking) is available:

	Personnel	Administration	Residential	Commercial
Direct costs	$140,000	$180,000	$480,000	$800,000
Number of employees	12	30	72	48
Direct labor hours			60,000	90,000
Square feet cleaned			450,000	570,000

a. Using the direct method, allocate the costs of Personnel and Administration to the Residential and Commercial divisions.

Total support costs allocated to Residential =
Total support costs allocated to Commercial =

b. Using the step method, allocate the costs of Personnel and Administration to the Residential and Commercial divisions.

Total support costs allocated to Residential =
Total support costs allocated to Commercial =

c. Salado prices jobs by the direct labor hour for Residential services and by the square foot cleaned for Commercial services. Compute the full cost of providing one direct labor hour of service for Residential and for one square foot cleaned for Commercial using (1) the direct method and (2) the step method.
Note: Round your answers to two decimal places (i.e. round $4.555 to $4.56).