Question

Annapolis Company has two service departments (Computer Operations & Maintenance Services). Annapolis has two production departments (Mixing Department & Packaging Department.) Annapolis uses a step allocation method where the Computer Operations Department is allocated to all departments and Maintenance Services is allocated to the production departments.  All allocations are based on total employees. Computer Operations has costs of $135,000 and Maintenance Services has costs of $115,000 before any allocations. What amount of Maintenance Services total cost is allocated to the Mixing Department? (round to closest whole dollar) Employees are:

            Computer Operations 4

            Maintenance Services 4

Mixing Department 7

Packaging Department 5

Answer 1

Answer

	Service Department	Production Department
	Computer operations	Maintenance Services	Mixing Department	Packaging Department
Number of employee’s	4	4	7	5
Costs Incurred	$135,000	$1,15000
Allocation of cost of computer operations department (Note1)	-	$33,750	$59,063	$42,187
Allocation of cost of maintenance services department (Note2)	-	-	$86,771	$61,979
Total Cost			$145,834	$104,166

Therefore, $86,771 of Maintenance Services total cost is allocated to the Mixing Department.

Note 1

It is given that the computer operations department is allocated to all departments including maintenance service department.

	Maintenance Services	Mixing Department	Packaging Department	Total
Number of employee’s	4	7	5	16
Calculation	135,000*(4/16)	135,000*(7/16)	135,000*(5/16)
Allocated amount	$33,750	$59,063	$42,187	$135,000

Note 2

It is given that the maintenance services department is allocated to only production departments.

Total cost of maintenance services department = $115,000 + $33,750

   = $148,750

	Mixing Department	Packaging Department	Total
Number of employee’s	7	5	12
Calculation	148,750 * (7/12)	148,750 * (5/12)
Allocated amount	$86,771	$61,979	$148,750