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1. (25 pts.) Adam Corp. allocates service department costs to operating departments.
Adam has three service departments-Accounting, Janitorial and Maintenance. Adam
has two operating departments-Xs and Qs. Accounting Department accumulates annual
costs of $250,000, and those costs are allocated using the number of transactions
processed by the Accounting Department. The X line and Q line required processing of
7,000 and 3,000 transactions respectively. Accounting, Janitorial and Maintenance each
required processing of 1,000; 3,000 and 2,000 transactions respectively. Janitorial
Department accumulates annual costs of $100,000, and those costs are allocated using
the department?s square footage of floor space. The X line and Q line have plant square
footage of 4,000 square feet and 11,000 square feet respectively. But Accounting,
Janitorial and Maintenance each have floor space of 3,000; 2,000 and 1,000 square feet
respectively. Maintenance Department accumulates annual costs of $300,000, and
those costs are allocated using the number of maintenance calls made over the year.
The X line and Q line made 40 and 60 maintenance calls, respectively, during the year.
Accounting, Janitorial and Maintenance made 15, 5, and 10 maintenance calls during
a. Allocate service department (accounting and maintenance) costs to operating
departments (Product 1, Product 2, and Product 3) using the direct method. b. Allocate service department costs using the step down method (assume
Accounting is allocated first, then Janitorial, and then Maintenance). Explain at least two of the key advantages of the step down method relative to the direct method
when allocating service department costs to operating departments.
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Oct 14, 2020EXPERT
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