Reference no: EM131260152

Sydney Mira provides two financial services through two seperate operating divisions (O1 and O2). There two operating divisions require the services of three internal service departments (S1, S2, S3). The costs of the three services departments last month and the use of each service department by the two operating divisions are:

++    S1    S2 S3                                                                                 

Service department cost (000s)                                  $400                      $500                  $600

Service units used by

O1                                                                            70                         60                     80

O2                                                                           90                          80                     50

Each service department meters the use of its services to other service departments (S1, S2, S3) and operating divisions (O1, O2) in Sydney Mira via "service units". Each of the three service departments has a different method for determining service units it supplies, but collectively all three service departments report service units and these service units are used to allocate the service departments' cost to the users of the service department. For example, service department S1 provided 70 service units to operating division O1 last month.

In addition to providing services to the two operating divisions, O1 and O2, the service departments provide services to the other service departments. The following table summarizes the service units consumed last monthby the service departments.

++                                     S1                      S2                  S3

S1 use                                                        50                   60

S2 use                             20                                               40

S3 use                              15                       25

Last month, S2 used 50 service units supplied by S1, and S1 used 20 service units supplied by S2.

a) Using the direct allocation method, calculate the allocated cost per service unit provided by S1, S2, and S3.

b) Using the direct allocation method, calculate the cost of S1, S2, and S3 that are allocated to O1 and O2.

c) Using the step-down allocation method, calculate the allocated cost per service unit provided by S1, S2, and S3. The order of the departments in the step down is S1 first, S2 second and S3 third.

d) Using the step down allocation method, calculate the costs of S1, S2, and S3 that are allocated to O1 and O2. Order is S1 first, S2 second, S3 third.

e) Using the step down allocation method, calculate the allocated cost per service unit provided by S1, S2, and S3. Order is S3 first, S2 second, S1 third.

f) Using the step down allocation method, calculate the costs of S1, S2, and S3 that are allocated to O1 and O2. Order is S3 first, S2 second, S1 third.

g) Discuss the advantages and disadvantages for using each method.