Munoz Trust Corporation has two services departments: actuary and economic analysis. Munoz also has three operating...
Munoz Trust Corporation has two services departments:
actuary and economic analysis. Munoz also has three operating
departments: annunity, fund management, and employee benefit
services. The annual costs of operating the service departments are
$552,000 for actuary and $897,000 for exonomic analysis. Munoz uses
direct method to allocate service center costs to operating
departments. Other relevant data
follow:
operating costs. Revenue
Annuity.
$600,000.
$970,000
Fund management $1,000,000. $1,200,000
Employee benefit services 700,000 1,190,000
The operating costs are measured before allocating service center
costs.
A) Use operating costs as the cost driver for
allocating service center costs to operating department.
B) Use revenue as the coat driver for allocating service center
costs to operating departments.
Homework Answers
A)Allocation of costs:
|
Annuity |
Fund Management |
Employee benefit services |
|
|
Actuary |
144,000 |
240,000 |
168,000 |
|
Economic Analysis |
234,000 |
390,000 |
273,000 |
|
Total |
378,000 |
630,000 |
441,000 |
Actuary Cost allocated to annuity = 552,000*600,000/2,300,000
= $144,000
Similarly economic analysis cost is allocated
b)using revenue:
|
Annuity |
Fund Management |
Employee benefit services |
|
|
Service Center Cost |
418,312.5 |
517,500 |
513,187.5 |
Actuary Cost allocated to annuity = (552,000+897,000)*970,000/3,360,000
= $418,312.5
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