The City of Dragons has two departments—Parks and Recreation (P&R) and Facility
ID: 2592920 • Letter: T
Question
The City of Dragons has two departments—Parks and Recreation (P&R) and Facility Maintenance (FM)—
that provide services to its citizens. P&R offers many programs in art, culture and athlectics, while the FM department maintains all the streets, buildings, and other public facilities. Behind the scenes, Harris has two departments that support the activities of the P&R and FM departments. The Human Resources department processes payroll and oversees all hiring, development, and training. The General Administration department provides IT support, overall coordination, and managerial support.
The table below provides data regarding the costs traced to and consumption of services by various activity pools/departments.
HR
GA
P&R
FM
Traced costs
$100,000
$60,000
$360,000
$450,000
Service consumption pattern
HR
GA
P&R
FM
Services
provided by
HR
40%
30%
30%
GA
20%
60%
20%
7-1. Allocate the costs of HR and GA to the line departments using the direct method.
7-2. Compute the total costs in the cost pool for P&R and FM departments.
7-3. Using the step-down method to allocate the the costst of the two support departments to the line departments. Allocate HR first.
7-4. Using the step-down method to allocate the the costst of the two support departments to the line departments. Allocate GA first.
7-5. Why are these results different?
7-6. Use the reciprocal method to allocate the two support departments to the line departments.
7-7. Which method of the three gives the most accurate estimate of the cost of the support services consumed by P&R and FM departments?
HR
GA
P&R
FM
Traced costs
$100,000
$60,000
$360,000
$450,000
Explanation / Answer
Solution 7-1 & 7-2:
Total cost in P&R = $455,000
Total Cost in FM = $515,000
Solution 7-3
Solution 7-4:
Cost Allocation - Direct method Particulars HR GA P&R FM Traced Cost $100,000.00 $60,000.00 $360,000.00 $450,000.00 Allocation of support department cost: HR (30:30) -$100,000.00 $50,000.00 $50,000.00 GA (60:20) -$60,000.00 $45,000.00 $15,000.00 Total $0.00 $0.00 $455,000.00 $515,000.00