```Exhibit 12-31
Direct method:
Residential Division
Commercial Division
Personnel
Activity
1
Activity 2
Total
Activity 3
Activity
4
Activity 5
Total
Direct costs
\$92,000
\$180,000
\$60,000
\$240,000
\$300,000
\$400,000
\$90,000
\$110,000
\$600,000
Personnel
(92,000)
0*
6,732
26,927
33,659
40,390
0
17,951
58,341
(180,000)
0
67,500
67,500
112,500
0
0
112,500
\$66,732
\$334,427
\$401,159
\$552,890
\$90,000
\$127,951
\$770,841
Total costs after
allocation
* Note that on the process map shown in Exhibit 12-24, the direct method ignores the link and the related allocated costs
from the Personnel Department to the Administrative Department.
Step-down method:
Residential Division
Personnel
Commercial Division
Activity
1
Activity 2
Total
Activity 3
Activity
4
Activity 5
Total
Direct costs
\$92,000
\$180,000
\$60,000
\$240,000
\$300,000
\$400,000
\$90,000
\$110,000
\$600,000
Personnel
(92,000)
10,000
6,000
24,000
30,000
36,000
0
16,000
52,000
(190,000)
0
71,250
71,250
118,750
0
0
118,750
\$66,000
\$335,250
\$401,250
\$554,750
\$90,000
\$126,000
\$770,750
Total costs after
allocation
1.
See Exhibit 12-31. Calculations for the exhibit follow:
3 + 12 + 18 + 8 = 41
(3  41) x \$92,000 = \$6,732
(12  41) x \$92,000 = \$26,927
(18  41) x \$92,000 = \$40,390
(8  41) x \$92,000 = \$17,951
\$240,000 + \$400,000 = \$640,000
(\$240,000  \$640,000) x \$180,000 = \$67,500
(\$400,000  \$640,000) x \$180,000 = \$112,500
2.
See Exhibit 12-31. Calculations for the exhibit follow:
5 + 3 + 12 + 18 + 8 = 46
(5  46) x \$92,000 = \$10,000
(3  46) x \$92,000 = \$6,000
(12  46) x \$92,000 = \$24,000
(18  46) x \$92,000 = \$36,000
(8  46) x \$92,000 = \$16,000
\$240,000 + \$400,000 = \$640,000
(\$240,000  \$640,000) x \$190,000 = \$71,250
(\$400,000  \$640,000) x \$190,000 = \$118,750
3. The allocation bases used by each division to allocate activity costs to products will be the cost drivers for activities 1
through 5. For example, suppose activity 1 in the residential division is “cleaning windows,” and the cost driver is
“number of windows.” Further assume that service type RA has a total of 3,000 units (customers) with an activityconsumption rate of 6 (an average of 6 windows per RA-type customer) and service type RB has 500 units with an activityconsumption rate of 40. The allocation of activity 1 cost using the step-down method would be:
Activity cost per driver unit
=
\$66,000  (3,000 RA Customers x 6 windows per customer + 500 RB Customers x 40 windows per customer)
= \$66,000  38,000 windows
= \$1.7368421 per window.
To service type RA: \$1.7368 x 18,000 windows = \$31,262.40
To service type RB: \$1.7368 x 20,000 windows = \$34,736.00
```