Ignatius College has provided the following data to be used in its service depar
ID: 2350530 • Letter: I
Question
Ignatius College has provided the following data to be used in its service department cost allocations:
Departmental costs before allocations
*Service Dept
Administration: $2,070,000
Physical Plant Services: $720,000
*Operating Dept
Undergrad programs: $23,650,000 Student Credit Hrs: 40,000
Graduate programs:$2,980,000 Student Credit Hrs: 5,000
Space Occupied in square feet
*Service Dept
Administration: 30,000
Physical Plan: 5,000
*Operating Dept
Undergrad programs: 250,000
Graduate programs: 50,000
Using the direct method allocate the costs of the service departments to the two operating departments.Allocate the costs of the Administration Dept on the basis of student credit-hours and the costs of the Physical Plant Service Dept on the basis of space occupied.
Explanation / Answer
Allocations:
Administration costs =(40/45, 5/45) .(2,070,000) 1,840,000 =230,000
Physical Plant costs= (250/300, 50/300)* .(720,000) 600,000 =120,000
Total costs after allocation =..$ 0 +$ 0 +$26,090,000 + $3,330,000= $29,420,000
Based on the space occupied by the two operating departments, which is 300,000 square feet.