Savings Bank of Lawrence has three revenue-generating departments: checking accounts, savings accounts, and loans.The bank also has three service areas: administration, personnel, and accounting.The direct costs per month and the interdepartmental service structure are shown below: How much cost would be allocated to the savings account area from administration using the direct method?

Question

Savings Bank of Lawrence has three revenue-generating departments: checking accounts, savings accounts, and loans.The bank also has three service areas: administration, personnel, and accounting.The direct costs per month and the interdepartmental service structure are shown below:  How much cost would be allocated to the savings account area from administration using the direct method?

Quizplus · Accepted Answer

According to the direct method of cost allocation, the costs are allocated based on each service area's actual usage. As per the given chart, the total cost of the administration department is $50,000, and the savings accounts department uses 20% of it. 
Hence, the cost allocated to the savings accounts area from administration using the direct method would be:
20% of $50,000 = $10,000. 
Therefore, option B is correct.

Savings Bank of Lawrence Has Three Revenue-Generating Departments: Checking Accounts