Frederick Company has two service departments (Cafeteria Services & Maintenance). Frederick has two production departments (Assembly...

Frederick Company has two service departments (Cafeteria Services & Maintenance). Frederick has two production departments (Assembly Department & Packaging Department.) Frederick uses a step allocation method where Cafeteria Services is allocated to all departments and Maintenance Services is allocated to the production departments. All allocations are based on total employees. Cafeteria Services has costs of $250,000 and Maintenance has costs of $280,000 before any allocations. What amount of Maintenance total cost is allocated to the Packaging Department? (round to closest whole dollar) Employees are: Cafeteria Services 6 Maintenance 5 Assembly Department 9 Packaging Department 11

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Expert Solution

First of all we will allocate Cafeteria service cost to all departments i.e. Maintenance, Assembly and Packaging Department in ratio of employee’s i.e 5:9:11 respectively. Therefore allocation would be as follow:

Maintenance Department = $250000*5/25 = $50000

Assembly Department = $250000*9/25 = $90000

Packaging Department = $250000*11/25 = $110000.

Therefore total Maintenance cost would be $280000 + $50000 (allocated cost of cafeteria department) i.e. $330000

Now the total maintenance cost will be allocated to Assembly and Packaging Department in ratio of employee’s i.e. 9:11 respectively. Therefore allocation would be as follow:

Assembly Department = $330000*9/20 = $148500

Packaging Department = $330000*11/20 = $181500.

Therefore total amount of $181500 of maintenance cost will be allocated to packaging department.

Note: Please feel free to ask any clarity on any of the above point.

ekkarill92 answered 1 year ago

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