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Direct and Step Method Cost Accounting

4B-1 Direct Method
Seattle Western University has provided the following data to be used in its service department cost allocations.
Service Departments Operating Departments
Administration Facility Undergraduate Graduate
Services Programs Programs

Department cost before
allocations $2,400,000 $1,600,000 $26,800,000 $5,700,000
Student credit-hours 20,000 5,000
Space occupied-square feet 25,000 10,000 70,000 30,000

Required:
Using the direct method, allocate the costs of the service departments to the two operating departments. Allocate the costs of Administration on the basis of student credit-hours and Facility Services costs on the basis of space occupied.

4B-2 Step Down Method
Madison Park Co-op, a whole foods grocery store and gift shop, has provided the following data to be used in its service department cost allocations:

Service Departments Operating Departments
Administration Janitorial Groceries Gifts
Departmental costs
before allocations $150,000 $40,000 $2,320,000 $950,000
Employee-hours 320 160 3,100 740
Space occupied-square hours 250 100 4,000 1,000

Using the step down method, allocate the costs of the service departments to the two operating departments. Allocate administration first on the basis of employee-hours and than Janitorial on the basis of space occupied.

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Solution Summary

The solution explains cost allocation using direct and step down methods

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