Jack Donaldson Owns and Operates Jack's Abstracting Service Required:
Use the Direct Method to Allocate the Service Department

question 16

Essay

Jack Donaldson owns and operates Jack's Abstracting Service. Jack's two revenue generating operations (Abstracting Services and Closing Services) are supported by two service departments: Clerical and Custodial. Costs in the service departments are allocated in the following order using the designated allocation bases.
Clerical: number of transactions processed.
Custodial: square footage of space occupied.
Average and expected activity levels for next month are as follows:
$$\begin{array} { l r r r } & \begin{array} { r } \text { Numbers of } \\\text { Trarsactions }\end{array} & \begin{array} { c } \text { Square } \\\text { Footage }\end{array} & \begin{array} { c } \text { Expected } \\\text { Costs }\end{array} \\\text { Abstract services } & 50 & 1,800 & \\\text { Closing services } & 25 & 2,200 & \\\text { Clerical } & & 1,600 & \$4 0 , 0 0 0 \\\text { Custodial } & 5 & & 10,000\end{array}$$
Required:
Use the direct method to allocate the service department costs to the revenue generating departments. Provide the total costs for the revenue departments.

---

Definitions:

Product Cost

The total amount of costs directly assigned to the creation of a product, including materials, labor, and overhead.

Operating Expenses

All the costs associated with the day-to-day operations of a business, excluding the direct costs of producing goods and services.

Current Liabilities

Short-term financial obligations that are due within one year or within the normal operating cycle of a business, including accounts payable, short-term loans, and taxes payable.

Indirect Costs

Expenses not directly tied to the production of goods or services, such as rent, utilities, and administrative salaries.