Chapter 5, Problem 1PA

Support department cost allocation

Blue Mountain Masterpieces produces pictures, paintings, and other home decor. The Printing and Framing production departments are supported by the Janitorial and Security departments. Janitorial costs are allocated to the production departments based on square feet, and security costs are allocated based on asset value. Information about these departments is detailed in the following table:

Management has experimented with different support department cost allocation methods in the past. The different allocation methods did not yield large differences of cost allocation to the production departments.

Instructions

1. 1. Determine which support department cost allocation method Blue Mountain Masterpieces would most likely use to allocate its support department costs to the production departments.
2. 2. Determine the total costs allocated from each support department to each production department using the method you determined in part (1).
3. 3. Without doing calculations, consider and answer the following: If Blue Mountain Masterpieces decided to use square feet instead of asset value as the cost driver for security services, how would this change the allocation of Security Department costs?