Question

Barstow Manufacturing Company has two service departments — product design and engineering support, and two production departments — assembly and finishing. The distribution of each service department's efforts to the other departments is shown below:

FROM	TO
	Design			Support			Assembly			Finishing
Design	0	%		10	%		30	%		60	%
Support	20	%		0	%		45	%		35	%

The direct operating costs of the departments (including both variable and fixed costs) were as follows:

Design	$	180,000
Engineering Support	$	200,000
Assembly	$	710,000
Finishing	$	1,080,000

The total cost accumulated in the finishing department using the step method is (calculate all ratios and percentages to 4 decimal places, for example 33.3333%, and round all dollar amounts to the nearest whole dollar; assume that the design department goes first):

• $2,370,000.

• $846,625.

• $886,625.

• $1,283,375.

• $893,291.

Answer 1

The correct answer is $1,283,375.

The total cost accumulated in the finishing department using the step method is $1,283,375.

Explanation:

Allocation of design:

Allocation to Engineering support = Cost of design department × Allocation percentage = $180,000 × 10% = $18,000
Allocation to Assembly = Cost of design department × Allocation percentage = $180,000 × 30% = $54,000
Allocation to Finishing = Cost of design department × Allocation percentage = $180,000 × 60% = $108,000

Allocation of engineering support:

Cost of engineering support = Actual cost + allocation from design = $200,000 + $18,000 = $218,000

Allocation to Assembly = Cost of engineering support × Allocation percentage = $218,000 × 56.25% = $122,625
Allocation to Finishing = Cost of engineering support × Allocation percentage = $218,000 × 43.75% = $95,375

Allocation percentage of Assembly = 45% + [20% × 45/(45+35) = 45% + 11.25% = 56.25%

Allocation percentage of Finishing = 35% + [20% × 35/(45+35) = 35% + 8.75% = 43.75%