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Homework answers / question archive / Bay State Community College enrolls students in two departments, Liberal Arts and Sciences

Bay State Community College enrolls students in two departments, Liberal Arts and Sciences

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Bay State Community College enrolls students in two departments, Liberal Arts and Sciences. The college also has two service departments, the Library, and the Computing Services Department. The usage of these two service departments' output for the year is as follows: Provider of Service
User of Service Library Computing Services
Library 20%
Computing Services
Liberal Arts 60% 30%
Sciences 40% 50%

The budgeted costs in the two service departments for the year are as follows:

Library $900,000
Computing services $360,000

1. Use the direct method to allocate the budgeted costs of the library and computing services department to the college's Liberal Arts and Sciences departments.

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In the direct method of cost allocation, the service department costs are directly allocated to the user departments without allocating the costs to the service departments.

The total cost of library services is 900,000 and is used 60% by Liberal Arts and 40% by Sciences. The cost allocated to liberal art is 900,000X60%=540,000 and the cost allocated to sciences is 900,000X40%=360,000

The total cost of Computing services is 360,000. In the cost allocation, 205 is for library. In direct method no cost will be allocated to library, we need to change the percentages of Liberal Arts and Sciences to make then 100%. The percentage of LiberalArts will be 30%/80% X 100%=37.5% and for sciences will be 50%/80%X100%=62.5%.
Cost allocated to liberal arts is 360,000X37.5%=135,000 and the cost allocated to sciences is 360,000X62.5%=225,000

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