Question

Exercise 11-29 Cost Allocation: Step Method (LO 11-3) 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 80,000 Maintenance 53,000 — 0.2 0.5 0.3 Cafeteria 42,000 0.7 — 0.2 0.1 Required: Use the step method to allocate the service costs, using the following: a. The order of allocation starts with Maintenance. (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations.) 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.)

Answer 1

Given Information
	Service Departments		Production Departments
	Maintenance	Cafeteria	Machining	Assembly
Direct Cost	$53,000.00	$42,000.00	$120,000.00	$80,000.00
Proportion of Maintenance cost used	0	0.2	0.5	0.3
Proportion of Cafeteria cost used	0.7	0	0.2	0.1
Answer a
Allocation of service cost using step method (The order of allocation starts with Maintenance)
	Service Departments		Production Departments
	Maintenance	Cafeteria	Machining	Assembly
	$53,000	$42,000	$120,000	$80,000
Allocation of maintenance cost (2:5:3)	-$53,000	$10,600	$26,500	$15,900
Allocation of Cafeteria cost (2:1)		-$52,600	$35,067	$17,533
Total Cost	$0	$0	$181,567	$113,433
Answer b
Allocation of service cost using step method (The order of allocation starts with Cafeteria)
	Service Departments		Production Departments
	Maintenance	Cafeteria	Machining	Assembly
	$53,000	$42,000	$120,000	$80,000
Allocation of Cafeteria cost (7:2:1)	$29,400	-$42,000	$8,400	$4,200
Allocation of maintenance cost (5:3)	-$82,400		$51,500	$30,900
Total Cost	$0	$0	$179,900	$115,100