In: Accounting
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 | $ | 103,000 | |||||||||
Assembly | 72,400 | ||||||||||
Maintenance | 44,800 | — | 0.2 | 0.6 | 0.2 | ||||||
Cafeteria | 36,000 | 0.6 | — | 0.2 |
0.2 |
Compute the allocation of service department costs to producing departments using the direct method. (Do not round intermediate calculations.)
Total Costs
Machining
Assembly
Allocation of service department costs to producing departments using the direct method
Maintenance cost = 44,800 divided to
Machining = 0.60/ (0.60+0.20) * 44,800 = 33,600
Assembly = 44,800 – 33,600 = 11,200
Cafeteria cost = 36,000 divided to
Machining = 0.20/ (0.20+0.20) *36,000 = 18,000
Assembly = 36000 – 18000 = 18,000
Therefore,
Machining gets = 33,600 + 18,000 = 51,600
Assembly gets = 11,200 + 18,000 = 29,200