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Chapter 13 1
CHAPTER 13
RESPONSIBILITY ACCOUNTING, SUPPORT DEPARTMENT
ALLOCATIONS, AND TRANSFER PRICING
24. a. From HR to Fabricating [(0.35 ÷ 0.80) × $630,000] $275,625
From Admin. to Fabricating [(0.50 ÷ 0.90) × $450,000] 250,000
Total $525,625
b. From HR to Finishing [(0.45 ÷ 0.80) × $630,000] $354,375
From Admin. to Finishing: [(0.40 ÷ 0.90) × $450,000] 200,000
Total $554,375
25. Checking:
Administration (.30 ÷ 0.80) x $540,000 $ 202,500
Human Resources (.30 ÷ 0.80) x $360,000 135,000
Accounting (.40 ÷ 0.80) x $300,000 150,000
Direct costs 630,000
$1,117,500
Savings:
Administration (.40 ÷ 0.80) x $540,000 $270,000
Human Resources (.20 ÷ 0.80) x $360,000 90,000
Accounting (.20 ÷ 0.80) x $300,000 75,000
Direct costs 337,500
$772,500
Loans:
Administration (.10 ÷ 0.80) x $540,000 $ 67,500
Human Resources (.30 ÷ 0.80) x $360,000 135,000
Accounting (.20 ÷ 0.80) x $300,000 75,000
Direct costs 675,000
$952,500
26. Administration ($540,000)
Human Resources($540,000 x 0.10) $ 54,000
Accounting ($540,000 x 0.10) 54,000
Checking ($540,000 x 0.30) 162,000
Savings ($540,000 x 0.40) 216,000
Loans ($540,000 x 0.10) 54,000
$540,000
Human Resources ($360,000 + $54,000 = $414,000)
2 Chapter 13
Accounting $414,000 x (0.10 ÷ .90) $ 46,000
Checking $414,000 x (0.30 ÷ .90) 138,000
Savings $414,000 x (0.20 ÷ .90) 92,000
Loans $414,000 x (0.30 ÷ .90) 138,000
$414,000
Accounting ($300,000 + $54,000 + $46,000 = $400,000)
Checking $400,000 x (0.40 ÷ .80) $200,000
Savings $400,000 x (0.20 ÷ .80) 100,000
Loans $400,000 x (0.20 ÷ .80) 100,000
$400,000
Checking: $630,000 + $162,000 + $138,000 + $200,000 = $1,130,000
Savings: $337,500 + $216,000 + $92,000 + $100,000 = $745,500
Loans: $675,000 + $54,000 + $138,000 + $100,000 = $967,000
27. a. Human Resources ($360,000)
Administration ($360,000 x 0.10) $ 36,000
Maintenance ($360,000 x 0.15) 54,000
Assembly ($360,000 x 0.40) 144,000
Finishing ($360,000 x 0.35) 126,000
$360,000
Administration ($558,000 + $36,000 = $594,000)
Maintenance $594,000 x (.10 ÷ 0.90) $ 66,000
Assembly $594,000 x (.50 ÷ 0.90) 330,000
Finishing $594,000 x (.30 ÷ 0.90) 198,000
$594,000
Maintenance ($170,000 + $54,000 + $66,000 = $290,000)
Assembly $290,000 x (.45 ÷ 0.80) $163,125
Finishing $290,000 x (.35 ÷ 0.80) 126,875
$290,000
b. Assembly:
(0.40 × $360,000) + [(0.5/0.9) × $594,000] + [(0.45/0.8) × $290,000] =
$144,000 + $330,000 + $163,125 = $637,125
Finishing:
(0.35×$360,000) + [(0.3/0.9) × $594,000] + [(0.35/0.8) × $290,000] =
$126,000 + $198,000 + $126,875 = $450,875
c. The cost allocation is affected by the order in which costs are assigned
Chapter 13 3
because the cost allocated from a particular service department depends on
the amount of cost allocated to that service department from other service
departments. The amount of costs allocated from other service departments
depends on the benefits-provided ranking.
28. Admin. HR Acctg.
Administration -- 0.10 0.10
Human Resources 0.10 -- 0.10
Accounting 0.10 0.10 --
Checking 0.30 0.30 0.40
Savings 0.40 0.20 0.20
Loans 0.10 0.30 0.20
(A) Administration = $540,000 + 0.10B + 0.10C
(B) Human Resources = $360,000 + 0.10A + 0.10C
(C) Accounting = $300,000 + 0.10A + 0.10B
B = $360,000 + 0.10($540,000 + 0.10B + 0.10C) + 0.10C
C = $300,000 + 0.10($540,000 + 0.10B + 0.10C) + 0.10B
B = $360,000 + $54,000 + 0.01B + 0.01C + 0.10C
B = $414,000 + 0.01B + 0.11C
.99 B = $414,000 + 0.11C
C = $300,000 + $54,000 + 0.01B + 0.01C + 0.10B
C = $354,000 + 0.11B + 0.01C
0.99C = $354,000 + 0.11B
C = $357,578 + 0.1111B
0.99B = $414,000 + 0.11($357,578 + 0.1111B)
0.99B = $414,000 + $39,333 + 0.0122B
0.9778B = $453,333
B = $463,625
C = $357,578 + 0.1111($463,625)
= $357,578 + 51,509
= $409,087
A = $540,000 + 0.10($463,625) + 0.10($409,087)
= $540,000 + $46,362.50 + $40,908.70
= $627,271.20
Admin. HR Acctg. Check. Sav, Loans
4 Chapter 13
Direct costs$540,000 $360,000 $300,000 $ 630,000 $337,500 $ 675,000
Admin. (627,271) 62,727 62,727 188,181 250,908 62,727
HR 46,363 (463,625) 46,363 139,088 92,725 139,088
Acctg. 40,909 40,909 (409,087) 163,635 81,817 81,817
Total costs$ 0 $ 0 $ 0 $1,120,904 $762,950 $ 958,632
Note: The Administration, Human Resources, and Accounting columns do not
sum to $0 because of rounding.
29. S1 = $170,000 + .40S2 + .20S3
S2 = $360,000 + .10S1 + .30S3
S3 = $600,000 + .20S1 + .30S2
a. Substitute S3 into the equations for S1 and S2:
(1) S1 = $170,000 + .40S2 + .20($600,000 + .20S1 + .30S2)
(2) S2 = $360,000 + .10S1 + .30($600,000 + .20S1 + .30S2)
Simplifying:
(1) S1 = $170,000 + .40S2 + $120,000 + .04S1 + .06S2
.96S1 = $290,000 + .46S2
S1 = $302,083 + .48S2
(2) S2 = $360,000 + .10S1 + $180,000 + .06S1 + .09S2
.91S2 = $540,000 + .16S1
S2 = $593,407 + .18S1
Substitute S2 into the equation for S1:
S1 = $302,083 + .48($593,407 + .18S1)
S1 = $302,083 + $284,835 + .09S1
.91 S1 = $586,918
S1 = $644,965
b. Substitute S1 ($644,965) into the original S2 and S3 equations:
(1) S2 = $360,000 + .10($644,965) + .30S3
(2) S3 = $600,000 + .20($644,965) + .30S2
Simplifying:
(1) S2 = $360,000 + $64,497 + .30S3
S2 = $424,497 + .30S3
(2) S3 = $600,000 + $128,993 + .30S2
S3 = $728,993 + .30S2
Substitute S3 into the equation for S2:
S2 = $424,497 + .30($728,993 + .30S2)
S2 = $424,497 + $218,698 + .09S2
.91S2 = $643,195
S2 = $706,808
Substitute S1 and S2 into the original equations and solve for S3:
Chapter 13 5
S3 = $600,000 + .20($644,965) + .3($706,808)
S3 = $600,000 + $128,993 + $212,042
S3 = $941,035
Allocate the service department costs to the other departments:
S1 S2 S3 RP1 RP2
Direct costs $170,000 $360,000 $600,000
S1 (644,965) 64,497 128,993 $193,490 $257,986
S2 282,723 (706,808) 212,042 141,362 70,681
S3 188,207 282,311 (941,035) 376,414 94,104
To RP $ (4,035)* $ 0* $ 0 $711,266 $422,771
*
off due to rounding
48. Assets # of Hours of.
Employed % Employees % Operation %
Surgery $3,948,500 53 20 20 24,850 35
In-patient 2,458,500 33 36 36 28,400 40
Out-patient 1,043,000 14 44 44 17,750 25
$7,450,000 100 71,000
Administration costs
Surgery: $5,400,000 x .53 = $2,862,000
In-patient: $5,400,000 x .33 = $1,782,000
Out-patient: $5,400,000 x .14 = $756,000
Public relations cost:
Surgery: $1,100,000 x .20 = $220,000
In-patient: $1,100,000 x .36 = $396,000
Out-patient: $1,100,000 x .44 = $484,000
Maintenance & janitorial cost:
Surgery: $1,700,000 x .35 = $595,000
In-patient: $1,700,000 x .40 = $680,000
Out-patient: $1,700,000 x .25 = $425,000
Surgery In-Patient Out-Patient
Administration $2,862,000 $1,782,000 $ 756,000
Public Relations 220,000 396,000 484,000
Maintenance 595,000 680,000 425,000
Total $3,677,000 $2,858,000 $1,665,000
6 Chapter 13
49. a. Administration Costs ($1,500,000)
Base Allocation
Accounting 15 ÷ 300 $ 75,000
Promotion 12 ÷ 300 60,000
Commercial 45 ÷ 300 225,000
Residential 210 ÷ 300 1,050,000
P. Mgmt. 18 ÷ 300 90,000
Total (rounded) $1,500,000
Accounting Costs ($990,000 + $75,000 = $1,065,000)
Base Allocation
Promotion $720,000 ÷ $3,600,000 $ 213,000
Commercial $900,000 ÷ $3,600,000 266,250
Residential $1,440,000 ÷ $3,600,000 426,000
P. Mgmt. $540,000 ÷ $3,600,000 159,750
Total (rounded) $ 1,065,000
Promotion ($720,000 + $60,000 + $213,000 = $993,000)
Base Allocation
Commercial $10,000,000 ÷ $30,000,000 $331,000
Residential $18,000,000 ÷ $30,000,000 595,800
P. Mgmt. $2,000,000 ÷ $30,000,000 66,200
$993,000
Summary of allocations:
Commercial: $225,000 + $266,250 + $331,000 = $822,250
Residential: $1,050,000 + $426,000 + $595,800 = $2,071,800
P. Mgmt.: $90,000 + $159,750+ $66,200 = $315,950
b. Commercial Residential P. Management
Revenues $10,000,000 $18,000,000 $ 2,000,000
Direct costs (10,490,000) (9,179,000) (398,400)
Indirect costs (822,250) (2,071,800) (315,950)
Income $ (1,312,250) $ 6,749,200 $ 1,285,650
The Property Management Department is the most profitable with a return on
revenues of 64.3%.
50. Administration Editorial
Department Base % Base %
Admin. (A) n/a n/a 5 11.11
Editorial (E) $ 75,000 6.25 n/a n/a
College Texts 600,000 50.00 25 55.56
Prof. Pubs. 525,000 43.75 15 33.33
Total $1,200,000 100.00 45 100.00 rounded
Chapter 13 7
A = $225,000 + 0.1111E
E = $175,000 + 0.0625A
A = $225,000 + 0.1111($175,000 + 0.0625A)
A = $225,000 + $19,444 + 0.0069A
0.9931A = $244,444
A = $246,142
E = $175,000 + 0.0625($246,142)
E = $175,000 + $15,384
= $190,384
College
Dept. Admin. Edit. Texts Prof. Pubs.
Direct costs $225,000 $175,000 $2,250,000 $ 950,000
Admin. (246,142) 15,384 123,071 107,687
Edit. 21,154 (190,384) 105,769 63,461
Total $ 0 $ 0 $ 2,478,840 $1,121,148
Note: The Administration column does not sum to zero because of rounding.
