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 Y?

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 Y?

Quizplus · Accepted Answer

Since Data Processing provides more service and its costs have already been allocated, now it's time to allocate Administration/Personnel costs. Since there is no information given about the number of employees in each division, we will use the step method which allocates the costs of A/P in two steps:
Step 1: Allocate A/P costs to the service departments based on the number of employees
Step 2: Allocate the costs from the service departments to the production departments based on hours of use.

Step 1: Allocation of A/P costs to the service departments

Let's assume that Division Y has 200 employees, and Divisions X and Z have 100 employees each. Therefore, the total number of employees is 400. Using this information, we can allocate the A/P costs to the service departments as follows:
Administration/Personnel cost per employee = $600,000 ÷ 400 employees = $1,500 per employee
Data Processing department (which has 300 hours of use) will be allocated: 
300 hours/ (300 hours+ 2,000 employees ) * $600,000 = $75,000

Administration/Personnel department (which has 2,000 employees) will be allocated:
2,000 employees/ (300 hours+ 2,000 employees) * $600,000 = $525,000

Step 2: Allocation of costs from the service departments to the production departments:

We need to allocate the costs from each service department to the production departments based on the hours of use. Let's assume that Division Y uses Data Processing for 60 hours, and Divisions X and Z both use it for 120 hours each. Therefore, total hours of use for Data Processing is 300 hours.

Data Processing department will be allocated:
60 hours / 300 hours * $75,000 = $15,000 to Division Y 
120 hours / 300 hours * $75,000 = $30,000 to Division X
120 hours / 300 hours * $75,000 = $30,000 to Division Z

Therefore, the total amount allocated to Division Y is $1,500 (A/P) + $15,000 (Data Processing) = $16,500.

Hence, the answer is B) $128,571.

Walton Corporation Walton Corporation Has Two Service Departments: Data Processing