Hypes Clinic uses the direct method to allocate service department costs to operating departments. The clinic has two service departments, Personnel and Support, and two operating departments, Prenatal and Pediatrics.
Personnel Department costs are allocated on the basis of employee hours and Support Department costs are allocated on the basis of space occupied in square feet. The total Pediatrics Department cost after the allocations of service department costs is closest to:
A) $1,036,914
B) $1,036,040
C) $1,024,310
D) $1,033,809

Question

Hypes Clinic uses the direct method to allocate service department costs to operating departments. The clinic has two service departments, Personnel and Support, and two operating departments, Prenatal and Pediatrics. 
Personnel Department costs are allocated on the basis of employee hours and Support Department costs are allocated on the basis of space occupied in square feet. The total Pediatrics Department cost after the allocations of service department costs is closest to:
A) $1,036,914 
B) $1,036,040 
C) $1,024,310 
D) $1,033,809

Quizplus · Accepted Answer

To allocate service department costs using the direct method, we first allocate Personnel Department costs based on employee hours and Support Department costs based on space occupied in square feet.

Personnel Department costs allocation:

- Prenatal Department: (2,400/3,600) x $400,000 = $266,667
- Pediatrics Department: (1,200/3,600) x $400,000 = $133,333

Support Department costs allocation:

- Prenatal Department: (15,000/30,000) x $600,000 = $300,000
- Pediatrics Department: (15,000/30,000) x $600,000 = $300,000

Total costs for each department:

- Prenatal Department: $1,500,000 + $266,667 + $300,000 = $2,066,667
- Pediatrics Department: $1,200,000 + $133,333 + $300,000 = $1,633,333

Therefore, the closest answer choice is B) $1,036,040.

Hypes Clinic Uses the Direct Method to Allocate Service Department