Management at C. Pier Press has decided to allocate costs of the paper’s two support departments (administration and human resources) to the two revenue-generating departments (advertising and circulation). Administration costs are to be allocated on the basis of dollars of assets employed; human resources costs are to be allocated on the basis of number of employees. The following costs and allocation bases are available:
Department Direct Costs Number of Employees Assets Employed
Administration $625,200 8 $309,680
Human resources 394,160 6 233,360
Advertising 766,240 10 609,920
Circulation 1,082,080 21 1,496,240
Totals $2,867,680 45 $2,649,200
a. Using the direct method, allocate the support department costs to the revenue-generating departments.
b. Using your answer to (a), what are the total costs of the revenue-generating departments after the allocations?
c. Assuming that the benefits-provided ranking is the order shown in the table, use the step method to allocate the support department costs to the revenue-generating departments.
d. Using your answer to (c), what are the total costs of the revenue-generating departments after the allocations?
e. Using the algebraic method, allocate the support department costs to the revenue-generating departments.
f. Using your answer to (e), what are the total costs of the revenue-generating departments after the allocations?
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