Question

Downhill Manufacturing produces snow skis in a two-step production process - cutting and laminating.

The manufacturing center is supported by two service centers - a health clinic and a janitorial service. The

following table reveals certain facts about each activity:

Health

	Health	Janitorial	Cutting	Laminating
Employees	3	5	12	16
Square footage	1,400	500	14,000	9,000
Cost incurred	$160,000	$150,000	$720,000	900,000

(a) Using the direct method, allocate the service department costs to production. The clinic costs are

to be allocated based on employees and the janitorial costs are to be allocated based on the square

footage.

(b) Using the step method, allocate the service department costs to production. The clinic costs are to

be allocated based on employees and the janitorial costs are to be allocated based on the square

footage. The first step will be to allocate clinic costs. The clinic employees maintain their space and

do not rely upon the janitorial service. However, janitorial employees occasionally sustain an injury

and utilize the clinic.

Answer 1