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 produc
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 | $196,000 | $252,000 | $672,000 | $1,120,000 |
| Number of employess | 17 | 42 | 101 | 67 |
| Direct labor hours | 84,000 | 126,000 | ||
| Square feet cleaned | 630,000 | 798,000 |
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.
(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 | $ |
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