The Star Company uses the step method for allocating the costs of its service departments to operating departments. The company has two service departments and two operating departments. The selected information for the four departments is given below. SERVICE DEPARTMENTS DEPARTMENTS OPERATING Dept. A Dept. B Dept. X Dept. Y Total Departmental costs before allocation $180,000 $45,000 $130,500 $344,500 $700,000 Employee hours Space occupied - square feet 6,000 3,000 9,000 15,000 33,000 5,000 100 3,000 22,000 30,100 The company uses employee hours as the base for allocating the cost of department A and space occupied for allocating the cost of department B.
Breakeven Analysis
Break Even Analysis is a term used in business, cost accounting and economics. It refers to a point where the total cost incurred becomes equal to the total revenue earned. Break Even Analysis determines the number of units to be sold to earn the revenue required to cover the total costs. Total cost is a sum total of fixed and variable costs.
Process analysis
The term process analysis can be defined as breakdown of production process into different phases that converts inputs into output. A series of routine activities are incorporated using organizational resources with a view to achieve operational excellence.
Allocate the cost of service departments to operating department using step down method
Step by step
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