Question

Caro Manufacturing has two production departments, Machining and Assembly, and two service departments, Maintenance and Cafeteria. Direct costs for each department and the proportion of service costs used by the various departments for the month of August follow:

				Proportion of Services Used by
Department	Direct Costs			Maintenance		Cafeteria		Machining		Assembly
Machining	$	120,000
Assembly		66,000
Maintenance		50,000		—		0.3		0.5		0.2
Cafeteria		42,000		0.7		—		0.2		0.1

Required:

Use the step method to allocate the service costs, using the following:

The order of allocation starts with Maintenance. (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations.)

	To From Maintenance Cafeteria Machining Assembly Service department costs Maintenance Cafeteria Total Costs $0 $0 $0 $0

b. The allocations are made in the reverse order (starting with Cafeteria). (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations.)

	To From Cafeteria Maintenance Machining Assembly Service department costs Cafeteria Maintenance Total Costs $0 $0 $0 $0

Answer 1

a) Allocate the costs of service departments using step down as shown below: Maintenance First
Particulars	Maintenance	Cafeteria	Machining	Assembly
From service departments
Total Costs	$50,000	$42,000	$120,000	$66,000
Allocate Maintenance first (/0.5/0.3/0.2)	($50,000)	$25,000	$15,000	$10,000
Total	$0	$67,000	$135,000	$76,000
Allocate Cafeteria (0.2 / 0.1)		($67,000)	$44,667	$22,333
Total	$0	$0	$179,667	$98,333
a) Allocate the costs of service departments using step down as shown below: Cafeteria first
Particulars	Maintenance	Cafeteria	Machining	Assembly
From service departments
Total Costs	$50,000	$42,000	$120,000	$66,000
Allocate Cafeteria first (0.7/0.2/0.1)	$29,400	($42,000)	$8,400	$4,200
Total	$79,400	$0	$128,400	$70,200
Allocate Maintenance (0.5 / 0.2)	($79,400)		$56,714	$22,686
Total	$0	$0	$185,114	$92,886
Explaination :
Under the step allocation method, first service department costs are apportioned to the other departments in the proportioned ratio as stated.
Under Sub part (1) , Mainetance cost are apportioned to other departments.
Particulars	Maintenance	Cafeteria	Machining	Assembly
From service departments
Total Costs	$50,000	$42,000	$120,000	$66,000
Allocate Maintenance first (/0.5/0.3/0.2)	($50,000)	50000*0.5	50000*0.3	50000*0.2
Total	$0	C31+C32	D31+D32	E31+E32
Allocate Cafeteria (0.2 / 0.1)		($67,000)	67000*0.2/0.3	67000*0.1/0.3
Total	$0	$0	D33+D34	E33+E34