Allocation of Service Department
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
Residential 1,000 10,000
Business 250 5,000
Switching 150 0
Maintenance 0 500
Costs: Maintenance is $14,000
costs using the step down method.
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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