ABC School of Music and Art provides classes for school-age children. The students are enrolled in two departments: Music Education and Art Education. The school also has two service departments: Administration and Human Resources (A & HR) and Maintenance (M). The budgeted costs in the two service departments are as follows:
Administration and Human Resources ………………………………………… $342,000
Maintenance……………………………………………………………………. 171,000
The usage of the service department’s output for the year is as follows:
| Product of Service | ||
| Usage of Service | Administration & Human Resources | Maintenance |
| Administration & Human Resources | – | 5% |
| Maintenance | 10% | – |
| Music Education | 40% | 40% |
| Art Education | 50% | 55% |
Required:
Allocate the two services department’s cost to the Music Education and Art Education departments using the following allocation methods.
- Direct Method (4 Marks)
- Step-down method (Since each service department serves on other service department, allocate the cost of A & HR first) (4 Marks)
- How does managerial accountant determine the department sequence in the step-down method? How are ties handled? (2 Marks)
