Behrend Clinic uses the direct method to allocate service department costs to operating departments. The clinic has two service departments, Personnel and Support, and two operating departments, Prenatal and Pediatrics. Personnel Department costs are allocated on the basis of employee hours and Support Department costs are allocated on the basis of space occupied in square feet. The total Pediatrics Department cost after the allocations of service department costs is closest to:
A) $441,260
B) $443,660
C) $433,440
D) $444,471

Question

Behrend Clinic uses the direct method to allocate service department costs to operating departments. The clinic has two service departments, Personnel and Support, and two operating departments, Prenatal and Pediatrics.  Personnel Department costs are allocated on the basis of employee hours and Support Department costs are allocated on the basis of space occupied in square feet. The total Pediatrics Department cost after the allocations of service department costs is closest to:
A) $441,260 
B) $443,660 
C) $433,440 
D) $444,471

Quizplus · Accepted Answer

Step 1: Allocate Personnel Department costs using employee hours
Personnel Department costs = $235,000
Total employee hours = 47,000
Pediatrics employee hours = 27,000
Allocation rate = $235,000 / 47,000 employee hours = $5 per employee hour
Pediatrics Department Personnel cost allocation = $5 x 27,000 employee hours = $135,000

Step 2: Allocate Support Department costs using space occupied
Support Department costs = $135,000
Total space occupied = 45,000 square feet
Pediatrics space occupied = 30,000 square feet
Allocation rate = $135,000 / 45,000 square feet = $3 per square foot
Pediatrics Department Support cost allocation = $3 x 30,000 square feet = $90,000

Step 3: Calculate total Pediatrics Department cost
Direct cost for Pediatrics Department = $220,000
Allocated Personnel cost = $135,000
Allocated Support cost = $90,000
Total Pediatrics Department cost = $220,000 + $135,000 + $90,000 = $445,000

The closest option is B) $443,660.

Behrend Clinic Uses the Direct Method to Allocate Service Department