Managerial Accounting, 16e (Garrison)
Appendix 4B Service Department Allocations
1) The order in which the costs of service departments are allocated will affect the amounts
allocated to an operating department when the direct method is used.
2) In both the direct and step-down methods of allocating service department costs, any amount
of the allocation base that is attributable to the service department whose cost is being allocated
is ignored.
3) The step-down method of cost allocation is more accurate than the direct method because the
step-down method takes into account the services that service departments provide to each other.
4) The step-down method of service department cost allocation ignores interdepartmental
services provided from one service department to another service department and allocates all
service department costs directly to operating departments.
5) Under the step-down method of cost allocation, the service department that provides the least
amount of service to the other departments should be allocated first.
6) The step-down method ultimately results in less total cost being allocated to operating
departments than the direct method.
7) Under the ________ method of allocating service department costs, services provided by
service departments to other service departments are ignored and all service department costs are
allocated directly to the operating departments.
A) step-down
B) weighted-average
C) direct
D) FIFO
8) The step-down method of allocating service department costs:
A) is a less accurate method of allocation than the direct method.
B) can’t be used when a company has more than two service departments.
C) is a simpler allocation method than the direct method.
D) ignores some interdepartmental services.
9) Behrend Clinic uses the direct method to allocate service department costs to operating
departments. The clinic has two service departments, Personnel and Support, and two operating
departments, Prenatal and Pediatrics.
Service Departments
Operating Department
Personnel
Support
Prenatal
Pediatrics
Departmental costs
$29,200
$55,040
$242,050
$423,200
Employee hours
5,000
1,000
26,000
14,000
Space occupied
3,000
2,000
35,000
8,000
Personnel Department costs are allocated on the basis of employee hours and Support
Department costs are allocated on the basis of space occupied in square feet. The total Pediatrics
Department cost after the allocations of service department costs is closest to:
A) $441,260
B) $443,660
C) $433,440
D) $444,471
Pediatrics
costs
Allocation:
14/40)
(35/43, 8/43)
allocation
10) Kolinski Surgical Hospital uses the direct method to allocate service department costs to
operating departments. The hospital has two service departments, Telecommunications and
Administration, and two operating departments, Surgery and Recovery.
Service Departments
Operating Department
Tele
communications
Adminis
tration
Surgery
Recovery
Departmental costs
$26,344
$27,472
$282,750
$599,690
Telecommunications
ports
31
14
40
34
Employees
30
11
74
27
Telecommunications Department costs are allocated on the basis of the number of
telecommunications ports in departments and Administration Department costs are allocated on
the basis of employees. The total Surgery Department cost after service department allocations is
closest to:
A) $317,118
B) $314,853
C) $310,244
D) $305,921
11) Koehl Corporation uses the direct method to allocate service department costs to operating
departments. The company has two service departments, Administrative and Facilities, and two
operating departments, Assembly and Wholesaling.
Service Departments
Operating Department
Administrative
Facilities
Assembly
Wholesaling
Departmental costs
$19,440
$71,340
$185,580
$392,950
Employee hours
4,000
2,000
22,000
14,000
Space occupied
2,000
1,000
39,000
2,000
Administrative costs are allocated on the basis of employee hours and Facilities costs are
allocated on the basis of space occupied. The total Wholesaling Department cost after the
allocations of service department costs is closest to:
A) $403,990
B) $396,430
C) $403,642
D) $402,601
12) Parker Corporation has two service departments, Cafeteria and Engineering, and two
operating departments. The number of employees in each department is given below:
Cafeteria
10
Engineering
40
Operating Department 1
500
Operating Department 2
200
The costs of the Cafeteria are allocated to other departments on the basis of the number of
employees in the departments. If these costs are budgeted at $69,375, the amount of Cafeteria
cost allocated to Engineering under the direct method would be closest to:
A) $0
B) $3,700
C) $3,750
D) $17,344
13) Stoltz Corporation uses the direct method to allocate service department costs to operating
departments. The company has two service departments, Data Processing and Personnel, and two
operating departments, Assembly and Finishing.
Service Department
Operating Department
Data
Processing
Personnel
Assembly
Finishing
Departmental costs
$26,488
$18,630
$188,980
$506,960
Computer workstations
37
12
45
41
Employees
35
11
46
35
Data Processing Department costs are allocated on the basis of computer workstations and
Personnel Department costs are allocated on the basis of employees. The total amount of Data
Processing Department cost allocated to the two operating departments is closest to:
A) $23,245
B) $26,488
C) $61,567
D) $16,874
14) The direct method is used by Marrero Publishing, Inc., to allocate service department costs to
operating departments. The company has two service departments, Information Technology and
Personnel, and two operating departments, Prepress and Printing.
Service Department
Operating
Department
Information
Technology
Personnel
Prepress
Printing
Departmental costs
$27,412
$27,008
$376,940
$530,110
Computer workstations
28
19
51
38
Employees
27
14
98
30
Information Technology Department costs are allocated on the basis of computer workstations
and Personnel Department costs are allocated on the basis of employees. The total Prepress
Department cost after service department allocations is closest to:
A) $406,961
B) $413,326
C) $402,881
D) $410,563
15) Reddicks Clinic uses the step-down method to allocate service department costs to operating
departments. The clinic has two service departments, Personnel and Information Technology
(IT), and two operating departments, Family Medicine and Pediatrics. Data concerning those
departments follow:
Service Departments
Operating Department
Personnel
IT
Family
Medicine
Pediatrics
Departmental costs
$86,184
$45,995
$608,130
$316,290
Employees
18
26
128
188
PCs
19
26
125
156
Personnel costs are allocated first on the basis of employees and IT costs are allocated second on
the basis of PCs. The total Pediatrics Department cost after allocations is closest to:
A) $345,462
B) $393,099
C) $392,838
D) $383,307
16) Rondo Children’s Clinic allocates service department costs to operating departments using
the step-down method. The clinic has two service departments, Administration and Information
Technology (IT), and two operating departments, Prenatal and Pediatric. Data concerning those
departments follow:
Service Department
Operating
Department
Administration
IT
Prenatal
Pediatric
Departmental costs
$54,736
$37,449
$383,270
$259,590
Employees
15
21
118
172
PCs
15
21
102
109
Administration costs are allocated first on the basis of employees and IT costs are allocated
second on the basis of PCs. The total Pediatric Department cost after allocations is closest to:
A) $311,117
B) $280,845
C) $304,995
D) $311,400
17) Cervetti, Inc., allocates service department costs to operating departments using the step-
down method. The company has two service departments, Administration and Physical Plant,
and two operating departments, Assembly and Testing. Data concerning those departments
follow:
Service Department
Operating Department
Administration
Physical Plant
Assembly
Testing
Departmental costs
$26,220
$78,860
$127,160
$737,860
Employee time
4,000
1,000
25,000
12,000
Space occupied
9,000
1,000
37,000
6,000
Administration Department costs are allocated first on the basis of employee time and Physical
Plant Department costs are allocated second on the basis of space occupied. The total Testing
Department cost after allocations is closest to:
A) $754,279
B) $757,240
C) $748,960
D) $757,368
18) Casas Corporation has two service departments, Personnel and Cafeteria, and two operating
departments, Customer Care and Customer Solutions. The number of employees in each
department are:
Personnel
8
Cafeteria
7
Customer Care
32
Customer Solutions
11
Total
58
The fixed costs of the Personnel Department are allocated on the basis of the number of
employees. If these costs are budgeted at $42,150, the amount of Personnel Department cost
allocated to the Cafeteria under the step-down method would be closest to:
A) $19,670
B) $5,901
C) $0
D) $5,087
19) Dainels Corporation uses the step-down method to allocate service department costs to
operating departments. The company has two service departments, General Management and
Physical Plant, and two operating departments, Sales and After-Sales. Data concerning those
departments follow:
Service Department
Operating Department
General
Management
Physical Plant
Sales
After-Sales
Departmental costs
$36,550
$70,300
$412,500
$492,780
Employee time
5,000
2,000
27,000
14,000
Space occupied
1,000
1,000
38,000
7,000
General Management Department costs are allocated first on the basis of employee time and
Physical Plant Department costs are allocated second on the basis of space occupied. The total
After-Sales Department cost after allocations is closest to:
A) $516,196
B) $515,880
C) $503,980
D) $513,911
20) Ockey Corporation uses the direct method to allocate service department costs to operating
departments. The company has two service departments, Information Technology and Personnel,
and two operating departments, Fabrication and Customization.
Service Department
Operating Department
Information
Technology
Personnel
Fabrication
Customization
Departmental costs
$26,880
$21,525
$251,210
$447,000
Computer workstations
37
18
43
37
Employees
34
13
73
32
Information Technology Department costs are allocated on the basis of computer workstations
and Personnel Department costs are allocated on the basis of employees.
The total amount of Information Technology Department cost allocated to the two operating
departments is closest to:
A) $26,880
B) $15,929
C) $58,119
D) $21,943
21) Ockey Corporation uses the direct method to allocate service department costs to operating
departments. The company has two service departments, Information Technology and Personnel,
and two operating departments, Fabrication and Customization.
Service Department
Operating Department
Information
Technology
Personnel
Fabrication
Customization
Departmental costs
$26,880
$21,525
$251,210
$447,000
Computer workstations
37
18
43
37
Employees
34
13
73
32
Information Technology Department costs are allocated on the basis of computer workstations
and Personnel Department costs are allocated on the basis of employees.
The total Fabrication Department cost after service department allocations is closest to:
A) $270,110
B) $277,969
C) $280,623
D) $274,308