# Paul Corp. is a retailing firm

Paul Corp. is a retailing firm which has two servicedepartments, Human resources and Information systems, and twooperating departments, Corporate sales and Consumer sales. TheHuman resources Department costs of \$100,000 are allocated on thebasis of number of employees. The Information systems Departmentcosts of \$150,000 are allocated based on the processing time. Thecosts of operating departments, Corporate sales and Consumer sales,are \$528,000 and \$222,000, respectively.Data on overhead costs, and information about the number ofemployees and processing time given as percentages (e.g., 13% isshown as 0.13), are as follows:

 Service Departments operating Departments ​ Humanresources Department Information systemsDepartment Corporate sales Department Consumer sales Department Overheadcosts: \$100,000 \$150,000 \$528,000 \$222,000 number ofemployees (percent) 0.06 0.20 0.28 0.46 processingtime (percent) 0.07 0.00 0.41 0.52

Overhead rates are established for each of the operatingdepartments. The Corporate sales Department allocates overheadbased upon corporate sales calls and the Consumer sales Departmentallocates overhead based upon cases of books sold. The plannedlevels are 16,000 corporate sales calls and 22,200 cases of bookssold.Allocate costs to the operating departments using the step methodand allocating Information systems Department costs first, thenfind the overhead rates for the Corporate sales and Consumer salesdepartments.

since we have to start with inforamtion systemdepartment first, we will allocate the cost of 150000 onthe basis of processing time (as given in question)

rate = 150000 / ( 7% + 41% + 52%)

rate = 1500 per 1 %

so cost for

Human resource = 1500 x 7  = 10500

corporate sales = 1500 x 41 = 61500

consumer sales = 1500 x 52 = 78000

Now we need to allocate the human resource costbased on number of employees

cost to be allocated = 100000 + 10500 (allocated frominformation system)

cost to be allocated = 110500 to corporate sales and consumersales department

rate = 110500 / ( 28% + 46%)

rate = 1493.24 per 1 %

so cost for

corporate sales = 1493.24 x 28 = 41810.81

consumer sales = 1493.24 x 46 = 68689.19

So total cost of corporate sales department = 528000 + 41810.81+ 61500 = \$631310.81

corporate sales calls = 16000 calls

overhead allocation rate = 631310.81/16000 = \$39.46 percorporate call

So total cost of consumer sales department = 222000 + 68689.19 +78000 = \$368689.19

cases of books sold = 22200

overhead allocation rate = 368689.19/22000 = \$16.60 percase of book sold

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