Question

Boston Corporation has two production departments, Assembly and Machining, and two service departments, Personnel and Cafeteria. Direct costs for each department and the proportion of service costs used by the various departments for the month of July, 2020 are as follows:

						Proportion of Services Used by:
Department	Direct costs				Personnel				Cafeteria				Machining			Assembly
Personnel	$	30,000								0.40				0.30			0.30
Cafeteria	$	50,000				0.20								0.50			0.30
Machining	$	80,000
Assembly	$	70,000

Required: (use ANOTHER sheet to show your work AND PLACE IT IN THE drop box FOR test #3) 10 points

• Compute the allocation of service department costs to producing departments for July 2020 using the direct method.

  Show the total costs allocated to each Producing Department AND Total Costs in each Producing Department after allocated Costs.

   a,  Allocated Costs to MACHINING ___________________ b. Allocated Cost to ASSEMBLY_________________________

c.  Total Costs to MACHINING________________________ d. Total Costs to ASSEMBLY____________________________

• Compute the allocation of service department costs to producing departments for July 2020 using the step method. Since the Personnel department provides the largest percentage of service to other service departments, it should be allocated first in the step method of allocation.  Show the total costs allocated to each Producing Department AND Total Costs in each Producing Department after allocated Costs.

e. Allocated Costs to MACHINING ___________________ f. Allocated Cost to ASSEMBLY_________________________

                       g.  Total Costs to MACHINING________________________ h. Total Costs to ASSEMBLY____________________________

Answer 1

1. Direct method:

	Service Department	Production Department
	Personnel	Cafeteria	Machining	Assembly
Direct cost	$30,000	$50,000	$80,000	$70,000
Allocation:
Personnel	(30,000)		15,000 (30,000*0.30/0.60)	15,000 (30,000*0.30/0.60)
Cafeteria		(50,000)	31,250 (50,000*0.50/0.80)	18,750 (50,000*0.30/0.80)
Total	$0	$0	$126,250	$103,750

Allocated cost to machining = $46,250 (15,000+31,250)

Allocated cost to assembly = $33,750 (15,000+18,750)

Total cost to machining = $126,250

Total cost to assembly = $103,750

2. Step method:

	Service Department	Production Department
	Personnel	Cafeteria	Machining	Assembly
Direct cost	$30,000	$50,000	$80,000	$70,000
Allocation:
Personnel	(30,000)	12,000 (30,000*0.40)	9,000 (30,000*0.30)	9,000 (30,000*0.30)
Cafeteria		(62,000)	38,750 (62,000*0.50/0.80)	23,250 (62,000*0.30/0.80)
Total	$0	$0	$127,750	$102,250

Allocated cost to machining = $47,750 (9,000+38,750)

Allocated cost to assembly = $32,250 (9,000+23,250)

Total cost to machining = $127,750

Total cost to assembly = $102,250