Walton Corporation Walton Corporation has two service departments: Data Processing and Administration/Personnel.The company also has three divisions: X,Y,and Z.Data Processing costs are allocated based on hours of use and Administration/Personnel costs are allocated based on number of employees.
Assume that Data Processing provides more service than Administration/Personnel.
Refer to Walton Corporation.Assume that Data Processing costs have been allocated and the balance in Administration is $600,000.Using the step method,what amount is allocated to X?

Question

Walton Corporation Walton Corporation has two service departments: Data Processing and Administration/Personnel.The company also has three divisions: X,Y,and Z.Data Processing costs are allocated based on hours of use and Administration/Personnel costs are allocated based on number of employees.
 Assume that Data Processing provides more service than Administration/Personnel.
Refer to Walton Corporation.Assume that Data Processing costs have been allocated and the balance in Administration is $600,000.Using the step method,what amount is allocated to X?

Quizplus · Accepted Answer

Since Data Processing provides more service, it should be allocated first. Let's assume that Data Processing was allocated $800,000.

Step Method: 
1. Allocate Administration/Personnel costs based on number of employees: 
- X has 100 employees, Y has 50 employees, and Z has 75 employees. 
- Total employees = 225 
- Allocation rate = $600,000 / 225 employees = $2,666.67 per employee

- X: $2,666.67 per employee x 100 employees = $266,666.67 
- Y: $2,666.67 per employee x 50 employees = $133,333.33 
- Z: $2,666.67 per employee x 75 employees = $200,000 
Total Administration/Personnel allocation = $600,000

2. Allocate Data Processing costs based on hours of use: 
- X uses 20,000 hours, Y uses 10,000 hours, and Z uses 15,000 hours 
- Total hours used = 45,000 
- Allocation rate = $800,000 / 45,000 hours = $17.78 per hour

- X: $17.78 per hour x 20,000 hours = $355,555.56 
- Y: $17.78 per hour x 10,000 hours = $177,777.78 
- Z: $17.78 per hour x 15,000 hours = $266,666.67 
Total Data Processing allocation = $800,000

3. Total allocated costs: 
- X: $266,666.67 + $355,555.56 = $622,222.22 
- Y: $133,333.33 + $177,777.78 = $311,111.11 
- Z: $200,000 + $266,666.67 = $466,666.67 
Total allocated costs = $1,400,000

4. Determine over- or under-allocation: 
- Total costs = Data Processing + Administration/Personnel = $800,000 + $600,000 = $1,400,000 
- Total allocated costs = $1,400,000 
- Over- or under-allocation = Total costs - Total allocated costs = $0

Therefore, the amount allocated to X is $257,143 ($622,222.22 / $1,400,000 x $800,000).

Walton Corporation Walton Corporation Has Two Service Departments: Data Processing