Chapter 04 – Appendix B Service Department Allocations
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Chapter 04 Appendix B Service Department Allocations Answer Key
True / False Questions
1. The step-down method allocates more total cost to operating departments than does the
direct method.
2. The step-down method of allocation is more accurate than the direct method.
3. The direct allocation method ignores the cost of interdepartmental services provided among
service departments and allocates all costs directly to operating departments.
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4. Under the direct method of allocating service department costs, reciprocal services
provided among service departments are ignored.
Multiple Choice Questions
5. Gatlin Company has several service departments that provide services for each other as
well as for operating departments within the company. The method that would be least
accurate in allocating the company’s service department costs would be:
6. The step-down method of allocating service department costs:
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7. Hidden 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.
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:
Chapter 04 – Appendix B Service Department Allocations
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8. Balthazar 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.
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:
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9. Amorim 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.
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:
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10. The direct method is used by Colquitt 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.
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:
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11. Silton 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.
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:
Chapter 04 – Appendix B Service Department Allocations
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12. Rich Company has a Custodial Services department which services the company’s
Maintenance department and two operating departments, Machinery and Milling. Costs of
Custodial Services are allocated to the other departments on the basis of square footage of
space occupied. The amount of space occupied by each department is given below:
Budgeted costs in Custodial Services amount to $86,400. The amount of Custodial Services
cost allocated to Maintenance under the step-down method would be:
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13. Bankert 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:
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:
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14. Poteete, 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:
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:
Chapter 04 – Appendix B Service Department Allocations
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15. Diprima 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 Pediatric. Data
concerning those departments follow:
Personnel 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:
Chapter 04 – Appendix B Service Department Allocations
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16. Stazenski 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:
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:
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The Uinta Company has two service departments and two operating departments. The
following data are available from last year:
The costs of service departments 1 and 2 are allocated on the basis of number of transactions
and square feet occupied respectively. No distinction is made between fixed and variable
costs.
17. Assuming that Uinta allocates service department costs by the direct method, the total
overhead costs allocated from Department 1 to Department X are:
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18. Assuming that Uinta allocates service department costs by the direct method, the total
overhead costs allocated from Department 2 to Department Y are:
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19. Assume that Uinta allocates service department costs by the step-down method, starting
with Department 1. The total overhead costs allocated from Department 1 to Department X
are:
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20. Assume that Uinta allocates service department costs by the step-down method, starting
with Department 1. The total overhead costs allocated from Department 2 to Department Y
are:
The Grand Company has budgeted departmental costs and operating activity in its four
departments for the coming year as follows:
The company does not distinguish between fixed and variable service department costs.
Custodial costs are allocated on the basis of square feet occupied. Repair costs are allocated
on the basis of the number of repair requests.
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21. Assume Grand uses the direct allocation method. After all allocations, how much of the
company’s total overhead cost will be charged to the Production Department for the coming
year?
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22. Assume Grand uses the step-down allocation method with Custodial costs allocated first.
After all allocations, how much of the company’s total overhead cost will be charged to the
company’s Finishing Department for the coming year?
Reddin Corporation has two service departments, Administrative and Facilities, and two
operating departments, Assembly and Customer Solutions.
The company uses the direct method to allocate service department costs to operating
departments. Administrative costs are allocated on the basis of employee hours and Facilities
costs are allocated on the basis of space occupied.
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23. The total amount of Administrative Department cost allocated to the Assembly
Department is closest to:
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24. The total Customer Solutions Department cost after the allocations of service department
costs is closest to:
President Clinic has two service departments, Administrative and Support, and two operating
departments, Adult Medicine and Pediatrics.
The clinic uses the direct method to allocate service department costs to operating
departments. Administrative 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.