The Grey Manufacturing Company has two service departments: Maintenance and Accounting. The Maintenance Department's costs of...

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

Expert Solution

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.

ekkarill92 answered 3 years ago

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