Question

Jake's Battery Company has two service departments, Maintenance and Personnel. Maintenance Department costs of $160,000 are allocated on the basis of budgeted maintenance-hours. Personnel Department costs of $40,000 are allocated based on the number of employees. The costs of operating departments A and B are $80,000 and $120,000, respectively. Data on budgeted maintenance-hours and number of employees are as follows:

	Support Departments		Production Departments
	Maintenance Department	Personnel Department	A	B
Budgeted costs	$160,000	$40,000	$80,000	$120,000
Budgeted maintenance-hours	NA	400	480	320
Number of employees	20	NA	80	240

Prepare a schedule showing allocation of the Support Department costs under the Direct Method (Use the format in Exhibit 15-4)

Prepare a schedule showing allocation of the Support Department costs using the Step-Down Method and presuming that the Maintenance Department is allocated first. (round answer to nearest dollar)

Answer 1

Answer 1:

Maintenance: In the ratio of 2:3.

Personnel: In the ratio of 1:3.

	A	B	Maintenance	Personnel
Operating costs	$   80,000	$ 120,000	$      160,000	$ 40,000
Maintenance	$   96,000	$   64,000	$    (160,000)
Personnel	$   10,000	$   30,000		$(40,000)
Total	$ 186,000	$ 214,000	$                -	$          -

Answer 2:

Maintenance: In the ratio of 48:32:40, or 6:4:5,

Personnel: In the ratio of 80:240:20, or 4:12:1.

	A	B	Maintenance	Personnel
Operating costs	$   80,000	$ 120,000	$      160,000	$ 40,000
Maintenance	$   64,000	$   42,667	$    (160,000)	$ 53,333
Total	$ 144,000	$ 162,667	$                -	$ 93,333
Personnel	$   23,333	$   70,000	$                -	$(93,333)
Total	$ 167,333	$ 232,667	$                -	$          -

In case of any doubt, please feel free to comment.