Question

In: Accounting

Candice Corporation produces reusable Christmas cards in two departments: Printing and Laminating. These departments are supported...

Candice Corporation produces reusable Christmas cards in two departments: Printing and Laminating. These departments are supported by two service departments: Personnel and Maintenance. Personnel use the number of employees as an allocation base and Maintenance uses machine hours. The expected level of activity for next quarter is shown below:

                                                No. Of Employees                     Machine hours

Personnel                                              40                                -

Maintenance                                         60                                -                                               

Printing                                                120                              60, 000

Laminating                                           180                              40, 000

Allocations are made in the order shown below. Budgeted costs for next quarter are P93, 000 for Personnel and P68, 000 for Maintenance.

Required:

Total amount of service cost that should be allocated to the printing and laminating department under

  1. Direct method
  2. Step method

Solutions

Expert Solution

1. Direct Method

Particulars Service Department Operating Department
Personal Maintenance Printing Laminating
Cost 93000 68000
Machine Hour Used 60000 40000
Number of Employees 40 60 120 180

Personal Depatment Cost / Total No of Employees (Operating Dept only) = 93000/ (120+180) = 310 per machine hr

Maintenance Dept Cost / Total Machine Hours (Operating Dept Only)     = 68000 / (60000+40000) = 0.68 per employee

Particulars Service Department Operating Department
Personal Maintenance Printing Laminating
Cost 93000 68000
Personal Dept Cost allocation (a) (93000) 37200 55800
(310 x 120) (310 x 180)
Maintenance Dept Cost allocation (b) (68000) 40800 27200
(0.68 x 60000) (0.68*40000)
Total Cost (a) +(b) 0 0 78000 83000

2. Step Down Method

Personal Depatment Cost / Total No of Employees (excluding personal dept) = 93000/ (60+120+180) = 258.3333 per machine hr

Maintenance Dept Cost / Total Machine Hours (excluding maintenane )  = 83500 / (60000+40000) = 0.835 per employee (No hours given for personal dept so no need to consider)

Total Cost = 68000 from maintenance department + Allocated cost of 15500 personal department to maintenance department

Particulars Service Department Operating Department
Personal Maintenance Printing Laminating
Cost               93,000               68,000
Personal Dept Cost allocation (a) (93,000)               15,500                 31,000          46,500
(258.3333 x 60) (258.3333 x 120) (258.3333 x 180)
Maintenance Dept Cost allocation (b)                       -   (83,500)                 50,100          33,400
(0.68 x 60000) (0.68*40000)
Total Cost (a) +(b)                 81,100          79,900

ekkarill92 answered 1 year ago
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