Question

The following information applies to the questions displayed below) Fifth Street Publishing (FSP) was founded many years ago as a printing cooperative offering printing services to members Most members were charitable and religious organizations. Ten years ago, FSP became a for-profit corporation, although it retained its commitment to the original member grOups. It has two production departments, Member and Commercial. The Member Department handles printing jobs for nonprofit groups and Commercial serves the remaining customers. FSP is organized this way to facilitate its billing: FSP charges nonprofit customers a price equal to the full cost of the job, including allocated overhead; commercial jobs are priced based on what the market will bear. FSP has two service departments, AcCounting and Computer Services (CS). Accounting costs are allocated based on number of employees and CS costs are allocated based on computer time (hours). Selected percentage use data follow Using Department Computer Supplying Departnent Accounting Services Accounting (employees) Computer Services (hours) Direct cost Member Conmercial e% 10% 10% 8e% t nces 40% 0% 10% sex $ 35,000 $130, eee $330,eee $8,000 Problem 11-64 (Algo) Part a Required: a. Suppose FSP allocated service department costs using the direct method. What is the amount of service department costs that will be allocated to each of the production departments? (Do not round intermediate calculations. Round your final answers to the nearest whole dollar amounts.)

Answer 1

The service are allocated to I the user service Departments overhead costs user departments by three methods: lo Direct Method 2. step method 3. Reciprocal method. a service departments (Accounting is allocated to the Production commercial) using Direct method service Department cost Allocation AND Computer service) cost departments (member and as follows: compulations: Accomting Usage of $1 Employees computer service Usage of $2 Transaction 40% 10% 10% Departments Accounting computer service Member commercial Total usage 90% 80% 50%

Direct Method: to e Service Department Accounting Computee service Percent Allocable Department Membee Direct cost PI $8000 60% $ 35000 40% Commercial P2 . 90% 60% to Seevice Department Direct Department cost Accounting Computer service Amount Allocable Department Membee Direct cost PI 130,000 $8000 800 $35,000 14000 commercial P2 $330,000 7900 21000 herefore, service Department cost department is $ 14800 and Department is $28200 allocated allocated to to Member commucial 11 & IN of the the accounting staff has higher wages thus this more request --- paperwork because is not unethical (6) It would not be ethical to use employee wages. instead of numbee of employees are more cost will be allocated to the members department

de postments (Accounting AND Computer Service) cost is allocated to the Production departments (Member Commercial using step method as follows: Service De Pactment cost Allocation computations. Accounting usage of $1 Employees computer Service usage of $2 Transaction 407. Departments Accounting computer Seevice Member Commercial Total usage 10 % Toy 80%. 10% 50% Step Method: Service Department Accounting Computee Service Peecent Allocable to Department Accounting computee selvice Direct cost Sl 52 P1 $8000 10% 60% $35000 40% 10% Commucial P2. 80% 50% From Accounting a $18000 Amount ackocable to computer service Membel commucial S2 P P2 $35000 $130000 $330000 SI Dinect cost Accounting computer srevice

e Service depastroents (Accounting AND Computer Service cost is allotted to the Production de Pactents (Member and comme using Pecitocal method as follows: under this method Service department costs are calculated by the simulaneous solution method: Total Service Department cesta Dinet cost of Savice Department + Cost allocated to the Seite de Be Peacentage follows: allocation of services to other departments is as ! Accounting usage of $1 Employees computee service! usage of $2. Howrs Departments Com Comnitel Seca Member Coromecial Total usage 10%. 10% SOX 10% 50% 1 1 Now, equations are shown as under: - Total SD costs = Dc of the Savice dept. + cost allocated to the so SI (Accounting) = $5000 +040 52 52emruter Service = $ 35000 +0.10 SI E Now substituting the first equation into the second equation - will give the answer as - s2 = $ 35000 +0.10 (38000 +0.60 52) S2 = $35000 + 800 + 0.04 S2 0.96 S2 = $ 35800 52 = 37291.66 = 37292 Now substitute the value of s2 in first equation, a) SI = $ooo +0.00037292) - $ 8000 + 14 916.3 ISL 22916.= 22917

of costs of This, both both the the server service de Parlments are calculated which will be furthee on thee allocated allocated to to the the operate operating departments service de partment cost allocation by Reciprocal Method is as follows: Accounting Usage of $1 Emp computee service Usage of $2 Transaction 407 10% Departments Accounting computee service Membee e commecial Total usage 10% 102 80% 50% 1 Reciprocal Method :- Peccent Accounting si Allocable to computer seevice S2 10% Seevice Department Accounting computer Service Membee commercial PL Ρ 10% 807 10% 50% 40% Amount Allocable to computul sevice SI S2 $8000 $ 35000 Membel Commucial P P2 $130000 $330000 From Direct Department cost Accounting Computee sevice