MedServices, Inc., is divided into two operating departments: Laboratory and Tissue Pathology. The company allocates delivery and accounting costs to each operating department. Delivery costs include the costs of a fleet of vans and drivers that drive throughout the state each day to clinics and doctors’ offices to pick up specimens and deliver them to the centrally located laboratory and tissue pathology offices.

 

Delivery costs are allocated on the basis of number of samples. Accounting costs are allocated on the basis of the number of transactions processed. No effort is made to separate fixed and variable costs; however, only budgeted costs are allocated. Alloca- tions for the coming year are based on the following data:

 

Support                                Operating Departments                          Departments

 

                               

 

Tissue Delivery   Accounting            Laboratory   Pathology

 

 

Overhead costs                $240,000    $270,000   $345,000     $456,000 Number of samples          —                                —                          70,200         46,800 Transactions processed   2,000                                                     200                      24,700         13,300

 

 

 

Required

 

1.    Allocate the support-department costs using the direct method.

 

2.    Allocate the support-department costs using the sequential method.

 

 

 

 

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