We can use the analysis in Exhibit 11.6 , starting with Administration:
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Panel A: Proportions |
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Service Department |
Department’s Direct Costs |
Information Systems |
Administration |
Hilltop Mine |
Pacific Mine |
Total |
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Administration |
$5,000,000 |
20% |
–0–% |
50% |
30% |
100% |
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Information Systems |
800,000 |
–0– |
–0– |
20 |
80 |
100 |
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|
$5,800,000 |
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Panel B: Step Method Allocation |
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Cost Allocation to |
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From |
Information Systems |
Administration |
Hilltop Mine |
Pacific Mine |
|
Direct costs |
$ 800,000 |
$5,000,000 |
$ –0– |
$ –0– |
|
Administration |
1,000,000 |
(5,000,000) |
2,500,000 |
1,500,000 |
|
Information Systems |
(1,800,000) |
–0– |
360,000 |
1,440,000 |
|
Total |
$ –0– |
$ –0– |
$2,860,000 |
$2,940,000 |
Exhibit 11.6 Service Department Cost Allocation Computations: Step Method—Carlyle Coal Company
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A |
B |
C |
D |
E |
F |
G |
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1 |
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Service Department |
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2 |
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Information Systems (S1) |
Administration (S2) |
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3 |
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Usage |
Percent |
Usage |
Percent |
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4 |
Departments |
(hours) |
of Total |
(employees) |
of Total |
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5 |
Administration |
100,000 |
50% |
–0– |
0% |
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6 |
Information Systems |
–0– |
0 |
2,000 |
20 |
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7 |
Hilltop Mine (P1) |
20,000 |
10 |
5,000 |
50 |
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8 |
Pacific Mine (P2) |
80,000 |
40 |
3,000 |
30 |
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9 |
Total usage |
200,000 |
100% |
10,000 |
100% |
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10 |
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11 |
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12 |
Step Method: |
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Percent Allocable to |
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13 |
|
Department |
Information |
|
Hilltop |
Pacific |
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14 |
|
Direct Cost |
Systems |
Administration |
Mine |
Mine |
Total |
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15 |
Service Department |
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16 |
Information Systems (S1) |
$ |
800,000 |
0.0% |
50.0% |
10.0% |
40.0% |
100.0% |
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17 |
Administration (S2) |
5,000,000 |
0.0% |
0.0% |
62.5% |
37.5% |
100.0% |
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18 |
|
$ 5,800,000 |
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19 |
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20 |
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Amount Allocable to |
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21 |
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|
Information |
|
Hilltop |
Pacific |
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22 |
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|
Systems |
Administration |
Mine |
Mine |
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23 |
From |
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24 |
Direct department costs |
|
$ 800,000 |
$ 5,000,000 |
$ –0– |
$ |
–0– |
|
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|
25 |
Information Systems (S1) |
|
(800,000) |
400,000 |
80,000 |
320,000 |
|
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|
26 |
Administration (S2) |
|
–0– |
(5,400,000) |
3,375,000 |
2,025,000 |
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27 |
Total |
|
|
$ –0– |
$ –0– |
$3,455,000 |
$ 2,345,000 |
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28 |
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