City Medical Clinic has two service departments, Building Services and Energy, and three operating departments, Pediatrics, Geriatrics, and Surgery. The clinic allocates the cost of Building Services on the basis of square footage and Energy on the basis of patient days. No distinction is made between variable and fixed costs. Budgeted operating data for the year just completed follow:??Service DepartmentsOperating Departments??Building ServicesEnergyPediatricsGeriatricsSurgery?Budgeted costs before allocation$30,000$15,000$135,000$90,000$150,000?Square feet2,0008,00012,00036,00024,000?Patient days??2,7503,8504,400Required:a. Prepare a schedule to allocate service department costs to operating departments by the direct method (round all dollar amounts to the nearest
whole dollar).b. Prepare a schedule to allocate service department costs to operating departments by the step-down method, allocating Building Services first (round all amounts to the nearest whole dollar).
What will be an ideal response?
a. Direct Method
Allocation base for Building Services costs = 12,000 + 36,000 + 24,000 = 72,000
Allocation base for Energy costs = 2,750 + 3,850 + 4,400 = 11,000
| ? | ? | Service Department | Operating Department | |||
| ? | ? | Building Services | Energy | Pediatrics | Geriatrics | Surgery |
| ? | Departmental costs | $30,000 | $15,000 | $135,000 | $90,000 | $150,000 |
| ? | Allocation: | ? | ? | ? | ? | ? |
| ? | Building Services costs (12,000/72,000, 36,000/72,000, 24,000/72,000) | (30,000) | ? | 5,000 | 15,000 | 10,000 |
| ? | Energy costs (2,750/11,000, 3,850/11,000, 4,400/11,000) | ? | (15,000) | 3,750 | 5,250 | 6,000 |
| ? | Total costs after allocation | $0 | $0 | $143,750 | $110,250 | $166,000 |
b. Step Method
Allocation base for Building Services costs = 8,000 + 12,000 + 36,000 + 24,000 = 80,000
Allocation base for Energy costs = 2,750 + 3,850 + 4,400 = 11,000
| ? | ? | Service Department | Operating Department | |||
| ? | ? | Building Services | Energy | Pediatrics | Geriatrics | Surgery |
| ? | Departmental costs | $30,000 | $15,000 | $135,000 | $90,000 | $150,000 |
| ? | Allocation: | ? | ? | ? | ? | ? |
| ? | Building Services costs (8,000/80,000, 24,000/80,000, 36,000/80,000, 24,000/80,000) | (30,000) | 3,000 | 4,500 | 13,500 | 9,000 |
| ? | Energy costs (2,750/11,000, 3,850/11,000, 4,400/11,000) | ? | (18,000) | 4,500 | 6,300 | 7,200 |
| ? | Total costs after allocation | $0 | $0 | $144,000 | $109,800 | $166,200 |
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