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Allocating service center costs step method and direct method Gregory Information Services Inc has two service departments human resources and billing Gregory’s operating departments organized

Allocating service center costs—step method and direct method

Gregory Information Services, Inc., has two service departments. human resources and billing.

Gregory’s operating departments, organized according to the special industry each department serves, are health care, retail, and legal services. The billing department supports only the three operating departments, but the human resources department supports all operating departments and the billing\ department. Other relevant information follows.

 

 

Human

 

Health

 

Legal

 

Resources

Billing

Care

Retail

Services

Number of employees

30

60

120

100

80

Annual cost*

$720,000

$1,710,000

$6,000,000

$4,800,000

$2,800,000

Annual revenue

$9,000,000

$6,200,000

$4,800,000

 

Required

a. Allocate service department costs to operating departments, assuming that Gregory adopts the step method. The company uses the number of employees as the base for allocating human resources department costs and department annual revenue as the base for allocating the billing department costs.

b. Allocate service department costs to operating departments, assuming that Gregory adopts the direct method. The company uses the number of employees as the base for allocating the human resources department costs and department annual revenue as the base for allocating the billing department costs.

c. Compute the total allocated cost of service centers for each operating department using each allocation method.

Jun 24 2020 View more View Less

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