Question

In: Accounting

Using the direct method, Samantha Company allocates Maintenance Department costs based on square footage serviced, and...

Using the direct method, Samantha Company allocates Maintenance Department costs based on square footage serviced, and it services the Cutting and Assembly departments. It allocates Cafeteria Department costs based on the number of employees served in the Cutting and Assembly departments.

It has the following information about its two service departments and two production departments, Cutting and Assembly Square Footage is listed first:

Maintenance Department

1,500

20

Cafeteria Department

2,000

10

Cutting Department

2,000

60

Assembly Department

8,000

20

a. What is the percentage (proportional) usage of the Maintenance Department by the Cutting Department?

b. What is the percentage (proportional) usage of the Maintenance Department by the Assembly Department?

c. If Samantha Company has $100,000 of Maintenance Department costs, how much is allocated to the Cutting Department, and how much is allocated to the Assembly Department?

Solutions

Expert Solution

Direct Method is a method in which we allocate the cost of service department to the production department and service rendered by one service department to other serviced department is being ignored.In direct method the cost is not allocated on the basis of actual usage percentage, but it is allocated in the ratio of usage between production(main) department

As in the above question the table is not that much understandable so below is the relevant table:

a).

The percentage of usage of Maintenance Department by the Cutting Department : Square footage by cutting department / Square footage in total => 2000/13500 = 14.81%

b)

The percentage of usage of Maintenance Department by the Assembly Department : Square footage by assembly department / Square footage in total => 8000/13500 = 59.26%

c)

The Amount Allocated to Cutting Department = $20000

The Amount Allocated to Assembly Department = $80000

Note : In direct method the cost is not allocated on the basis of actual usage percentage, but it is allocated in the ratio of usage between production(main) department

ekkarill92 answered 2 years ago
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