Question

Christmas Timber, Inc., produces Christmas trees. The trees are produced through a cutting and pruning process. Machine maintenance and janitorial labors are performed throughout the production process by nonproduction employees. Maintenance and janitorial costs are allocated based on machine hours used and the number of trees in each department, respectively. The company estimates that the cutting and pruning areas typically have about 16 and 64 trees, respectively, in them at 1 time. The company also estimates that the cutting process requires about 9 times as many machine hours as the pruning process. The total costs of each department are as follows:

Maintenance Department	$7,000
Janitorial Department	4,000
Cutting Department	58,000
Pruning Department	13,000

Using the direct method of support department cost allocation, determine the total cost of each production department after allocating all support costs to the production departments.

	Cutting Department		Pruning Department
Production departmentsʼ total costs	$		$

Answer 1

Here,

Service department : Maintenance Department and Janitorial Department

Production department: Cutting Department, and Pruning Department

Under direct method, cost of service department (Maintenance Department and Janitorial Department) should be transferred to the production department only (Cutting Department and Pruning Department). Janitorial cost allocated based on the number of trees and maintenance cost allocated based on the maintenance hours.

Direct method
Department	Maintenance Department	Janitorial Department	Cutting Department	Pruning Department
Direct overhead	7,000	4,000	58,000	13,000
Allocated Maintenance Department cost In Proportion of 9 : 1 respectively (9+1=10) (For Cutting Department = 7000 * 9/10) (For Pruning Department = 7000 * 1/10)			6,300	700
Allocated Janitorial Department In Proportion of 16 : 64 respectively (16 + 64 = 80) (For Cutting Department = 4000 * 16/80) (For Pruning Department = 4000 * 64/80)	(7,000)	(4,000)	800	3,200
Total cost after departmental allocation using the direct method Production departments' Total costs	0	0	$65,100	$16,900