Problem 4-26A (Algo) Allocating service center costs-step method and direct method LO 4-6 Walton Information Services, Inc., has two service departments: human resources and billing. Walton'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. Legal Services Human Billing 50 Resources Health Care Retail Number of employees Annual cost* 20 207 157 86 $ 6,170,000 $10,700,000 $900,000 $2,110,000 $4,970,000 $5,350,000 $2,970,000 $3,950,000 Annual revenue *This is the operating cost before allocating service department costs. Required a. Allocate service department costs to operating departments, assuming that Walton 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 Walton 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.
Problem 4-26A (Algo) Allocating service center costs-step method and direct method LO 4-6 Walton Information Services, Inc., has two service departments: human resources and billing. Walton'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. Legal Services Human Billing 50 Resources Health Care Retail Number of employees Annual cost* 20 207 157 86 $ 6,170,000 $10,700,000 $900,000 $2,110,000 $4,970,000 $5,350,000 $2,970,000 $3,950,000 Annual revenue *This is the operating cost before allocating service department costs. Required a. Allocate service department costs to operating departments, assuming that Walton 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 Walton 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:Problem 4-26A (Algo) Allocating service center costs-step method and direct method LO 4-6
Walton Information Services, Ic., has two service departments: human resources and billing. Walton'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
Legal
Resources
Billing
Health Care
Retail
Services
Number of employees
20
50
207
157
86
$ 6,170,000
$10,700,000
Annual cost*
$900,000
$2,110,000
$4,970,000
$5,350,000
$2,970,000
$3,950,000
Annual revenue
*This is the operating cost before allocating service department costs.
Required
a. Allocate service department costs to operating departments, assuming that Walton 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 Walton 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.
Transcribed Image Text:X Answer is not complete.
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 Walton adopts the step method. The company
uses the department annual revenue as the base for allocating the billing department costs. (Round "Allocation rate" to 2
decimal places.)
Weight of
Base
Allocation
Department
Allocated Cost
Rate
Health Care
$ 2,000.00
$
207 X=
2$
414,000
Retail
2,000.00
157 X
314,000
%3D
Legal Services
2,000.00 x x
86 X
172,000
=
Total
$
900,000
< Req A1
Req B1 >
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