Exhibit 12-31
Direct method:
Residential Division
Commercial Division
Personnel
Admin.
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
Administrative
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
Admin.
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
Administrative
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
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Exhibit 12-31 Direct method: Residential Division Commercial

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