Auburn Banking and Loan Company has six service departments—human resources, duplicating, janitorial, accounting, graphic design, and food services—whose costs are allocated to the company’s two subsidiaries, Auburn Personal Banking and Auburn Business Banking, on the basis of their relative costs.
a) Explain allocation bases to be used in allocating the service department costs to the two subsidiaries. Substantiate response with references.
b) Food services are used by employees in the Human resources department. Would a share of food service costs be allocated to HR under the direct method of allocation? Support response with appropriate reasoning?