Problem 1 – Service Cost Allocation
Computer Information Services is a computer software consulting company. Its three
major functional areas are computer programming, information systems consulting, and
software training. Carol Birch, a pricing analyst in the Accounting Department, has been
asked to develop total costs for the functional areas. These costs will be used as a
guide in pricing a new contract. In computing these costs, Birch is considering three
different methods of allocating overhead costs-the direct method, the step method, and
the reciprocal method. Birch assembled the following data on overhead from its two
service departments, the Information Systems Department and the Facilities

Information systems is allocated on the basis of hours of computer usage; facilities are
allocated on the basis of floor space.
1. Allocate the service department costs to the user departments using the direct
method. (Round to the
nearest dollar and provide total user department costs)
2. Allocate the service department costs to the user departments using the step method.
Information Systems first and round to the nearest dollar.

Problem 2 – Variance Analysis
The XYZ Company uses a standard cost accounting system and estimates production
for the year to be
60,000 units. At this volume, the company’s variable overhead costs are $0.50 per direct
labor hour.
The company’s single product has a standard cost of $30.00 per unit. Included in the
$30.00 is $13.20 for direct materials (3 yards) and $12.00 of direct labor (2 hours).
Production information for the month of March follows:

Required: (Be sure to indicate whether the variances are favorable or unfavorable.)
a. Compute the direct material price variance.
b. Compute the direct material efficiency
variance. c. Compute the direct labor
price (rate) variance.
d. Compute the direct labor efficiency variance