Discuss reasons why service department costs are allocated

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Reference no: EM132536414

University Publishing Limited has two operating departments-Book sales and Video sales-and two service departments-HRO and IT. The company uses the number of employees to allocate HRO costs and the IT department uses processing time to allocate IT costs. The following data are provided:

Budgeted costs incurred before any cost allocations

Book sales 751,200

Video sales 382,100

HRO 55,600

IT 1 84,700

Budgeted number of employees

Book sales 36

Video sales 18

IT 15

Budgeted processing time (in minutes)

Book sales 1,750

Video sales 1,450

Question a. Allocate the service departments' costs to the operating departments using the direct method.

Question b. Rank the support departments based on the percentage of their services provided to other support departments. Use this ranking to allocate the support departments' costs to the operating departments based on the step-down method.

Question c. Briefly discuss reasons why service department costs are allocated.

Reference no: EM132536414

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