How to determine the costs allocated to the retai

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Reference no: EM132566860

DIRECT and step down allocations, activity based allocation

M&O partners provides consulting sevices for a variety of clients. The company has two producting divisions, one for retail companies and one for industrial companies, and two service department, personnel and administrative. Until now the company has not allocated service department costs. However, M&O Has decided to allocate these costs to the producing department using an activity based allocation system. The retail division has activity 1 and activity 2 and the industrial division has activity 3, activity 4, and activity 5. The company has decided to allocate personnel costs on the basis of number of employees and administrative costs on the basis of the direct costs of the activities in each division . however, administrative services are provided only to activities 2 and 3, so no administrative costs are allocate to activities 1, 4, and 5.

Data for the activities follow:

                                             Number of personnel                     Direct costs

Personel                               2                                           $92.000

Administrative                        5                                            170,000

Retail :

Activity 1                                    3                                        60,000

Activity 2                                      12                                 240,000

Industrial :

Activity 3                                        18                                   400,000

Activity 4                                          0                                      90,000

Activity 5                                               8                                  110,000

Question 1. Determine the costs allocated to the retail and industrial divisions using the direct method

Question 2. Determine the costs allocated to the retail and industrial divisions using the step-down method. The personnel department costs should be allocated first.

Reference no: EM132566860

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