Question

O'Brian's Department Stores allocates the costs of the Personnel and Payroll departments to three retail sales departments, Housewares, Clothing, and Furniture. In addition to providing services to the operating departments, Personnel and Payroll provide services to each other. O'Brian's allocates Personnel Department costs on the basis of the number of employees and Payroll Department costs on the basis of gross payroll. Cost and allocation information for June is as follows:
Personnel Payroll Housewares Clothing Furniture
Direct department cost $ 7,800 $ 3,200 $ 12,200 $ 20,000 $ 16,750
Number of employees 5 4 8 16 4
Gross payroll $ 6,000 $ 3,300 $ 10,600 $ 17,400 $ 8,100
(a) Determine the percentage of total Personnel Department services that was provided to the Payroll Department. (Round your answer to one decimal place.)
(b) Determine the percentage of total Payroll Department services that was provided to the Personnel Department. (Round your answer one decimal place.)
(c) Prepare a schedule showing Personnel Department and Payroll Department cost allocations to the operating departments, assuming O'Brian's uses the step method.
Do not round until your final answers. Round answers to the nearest dollar.
Service Departments Producing Departments
Payroll Personnel Housewares Clothing Furniture
Total costs

Answer 1

Answer:

a. Department        No of employee

Payroll                        4

Housewares              8

Clothing                     16

Furniture                     4

Total                          32

Personnel department cost allocated to payroll department

= (Direct department cost of personnel * No of payroll employees) / Total no of employees

= $7,800 * 4/32

=$975

Percentage of total personnel department services that was provided to the payroll Department is

= Cost allocated to payroll department/ Personnel direct cost

= $975/$7,800

=0.125

=12.5%

b.  Department        Gross payroll $

Personnel                   6,000

Housewares               10,600

Clothing                       17,400

Furniture                        8,100

Total                             42,000

Payroll department cost allocated to personnel department

= (Direct department cost of payroll * Gross payroll of personnel department) / Total gross payroll

= $3,200 * $6,000 / $42,100

=$456

Percentage of total payroll department services that was provided to the Personnel Department is

= Cost allocated to personnel department / Payroll direct cost

=$456 / $3,200

= 0.143

=14.3%

c. Allocation of personnel department cost is on basis of no of employee

Department      No of Employee    Proportion    Percentage

Payroll                        4                           4/32              12.50%

Housewares              8                           8/32                25%

Clothing                     16                          16/32               50%

Furniture                      4                           4/32              12.50%

Total                          32

Allocation of personnel department cost is on basis of Gross payroll

Department      Gross payroll   Proportion       Percentage        

Housewares        $10,600        10,600/36,100      29.36%

Clothing               $17,400         17,400/36,100      48.20%

Furniture              $8,100           8,100/36,100        22.44%

Total                     $36,100

Schedule showing Personnel Department and Payroll Department cost allocations to the operating departments

                     Service Dept.               Producing Dept.

                   Personnel  Payroll    Housewares  Clothing   Furniture

Direct dept  $7,800   $3,200        $12,700       $20,000   $16,750

cost

Allocation     ($7,800)   $975        $1,950         $3,900       $975

of personnel

cost

Allocation       -           ($4,175)       $1,226         $2,012         $937

of Payroll

cost

Total               $0         $0             $15,376      $25,912      $18,662