Question

A. The Grey Manufacturing Company has two service departments: Maintenance and Accounting. The Maintenance Department's costs of $300,000 are allocated on the basis of machine hours. The Accounting Department's costs of $120,000 are allocated on the basis of the number of employees within a specific department. The direct departmental costs for A and B are $300,000 and $500,000, respectively.

	Maintenance	Accounting	A	B
Machine hours	480	20	2,300	200
Number of employees	2	2	8	4

What are the total service department costs allocated to Department A using the step method if the maintenance department costs are allocated first?

Answer 1

Total service department costs allocated to Department A can be computed as:

Thus,Total service department costs allocated to Department A=$81,587

*note

As maintenance department cost is alloated based on number of machine hours, thus the total machine hours are taken as:20+2300+200=2520

As accounting department cost is allocated based on number of employees , thus total no. of employees=8+4=12 are taken

Maintenance Accounting $300,000 ($300,000) ($300,000/2,520*20) Department costs before allocation Allocation of maintenance department costs Subtotal Allocation of accounting department costs $120,000 $2,381($300,000/2,520*2,300) $122,381 ($122,381) ($122,381/12*8) $300,000 $273,810 ($300,000/2,520*200) $573,810 $81,587 ($122,381/12*4) $500,000 $23,810 $523,810 $40,794