Allocation of Service Costs

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Homework Handout Problem 4-1 Allocation of Service Department Costs Pioneer Telephone Company of Oreana has two types of customers: residential and business. They have several non-revenue cost centers. Two of those are switching and maintenance. Cost driver for switching is number of calls. Driver for maintenance is number of maintenance hours. Maintenance is the first department for step-down calculations. Hours Calls 1,000 10,000 Business 250 5,000 Switching 150 0 0 500 Residential Maintenance Costs: Maintenance is $14,000 Switching is $ 46,500 Required: 1. 2. 3. 4. Allocate the costs using the step down method. Allocate the costs using the reciprocal method. What is the third method that could be used? Which is the best method and why?

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Joy Root
School: Cornell University

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