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Direct Method of Service Department Cost Allocation for College

Bay State Community College enrolls students in two departments, Liberal Arts and Sciences. The college also has two service departments, the Library, and the Computing Services Department. The usage of these two service departments' output for the year is as follows:

Provider of Service
User of Service Library Computing Services
Library 20%
Computing Services
Liberal Arts 60% 30%
Sciences 40% 50%

The budgeted costs in the two service departments for the year are as follows:

Library $900,000
Computing services $360,000

1. Use the direct method to allocate the budgeted costs of the library and computing services department to the college's Liberal Arts and Sciences departments.

Solution Preview

In the direct method of cost allocation, the service department costs are directly allocated to the user departments without allocating the costs to the service departments.

The total cost of library ...

Solution Summary

The solution explains the direct method of cost allocation.