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Question - Norman College has two service departments, the Library and Computing departments, which assist the School of Business and the School of Health. Budgeted costs of the Library and Computing service departments are $800,000 and $1,800,000, respectively.
Usage of the service departments' output during the year is anticipated to be:
Services provided to:
The Library department
The Computing department
School of Business
School of Health
Services provided by:
-
20%
60%
10%
30%
Required -
1. Use the direct method to allocate the costs of the Library and Computing service departments to the School of Business and the School of Health. Please show all workings.
2. Use the step-down method to allocate the costs of the Library and Computing service departments to the School of Business and the School of Health. Please show all workings.
3. Which other alternative method can be used to allocate the costs of the Library and Computing service departments to the School of Business and the School of Health? How does it differ from the direct and step-down methods?
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