Question

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 accounting department costs are allocated first?

B. Rodeo Co. manufactures products X and Y from a joint process that also yields a by-product, Z. Revenue from sales of Z is treated as a reduction of joint costs. Additional information is as follows:

Joint costs were allocated using the net realizable value method at the split-off point. The joint costs allocated to product X were

Answer 1

Allocation of service costs - Accounting
Particulars	Calculation	Maintenance	Dept A	Dept B	Total
Number of employees	Given	2	8	4	14
Cost to be allocated	$120,000 x 2/14	$    17,142.86
	$120,000 x 8/14		$     68,571.43
	$120,000 x 4/14			$ 34,285.71	$ 1,20,000.00
Allocation of service costs - Maintenance
Particulars	Calculation		Dept A	Dept B	Total
Machine hours	Given		2300	200	2500
Cost to be allocated	$317,142x 2300/2500		$ 2,91,771.43
	$317,142x 200/2500			$ 25,371.43	$ 3,17,142.86

Particulars	Maintenance	Accounting	Department A	Department B
Department cost before allocation	$   3,00,000.00	$   1,20,000.00	$   3,00,000.00	$ 5,00,000.00
Allocation:
Accounting Department	$       17,142.86	$ -1,20,000.00	$      68,571.43	$      34,285.71
Balance	$   3,17,142.86	$                      -	$   3,68,571.43	$ 5,34,285.71
Maintenance Department	$ -3,17,142.86		$   2,91,771.43	$      25,371.43
Total Costs after allocation	$                      -		$   6,60,342.86	$ 5,59,657.14

B. The joint cost to be allocated to product X will be in the proportion of Net realizable value at the point of split off. Further total joint costs should be reduced by the revenue from by product Z.