Question:
Cost Allocation: Step Method
Refer to the data for Warren Ltd.
Required
Use the step method to allocate the service costs, using the following:
a. The order of allocation starts with Maintenance.
b. The allocations are made in the reverse order (starting with Cafeteria).
Cost Allocation: Direct Method
Warren Ltd. has two production departments, Building A and Building B, 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 June follow:
|
Proportion of Services Used by
|
|
Department
|
Direct Costs
|
Maintenance
|
Cafeteria
|
Building A
|
Building B
|
|
|
|
|
|
|
|
|
Building A
|
$990,000
|
|
|
|
|
|
Building B
|
644,000
|
|
|
|
|
|
Maintenance
|
400,000
|
-
|
0.2
|
0.5
|
0.3
|
|
Cafeteria
|
320,000
|
0.8
|
-
|
0.1
|
0.1
|
Required
Compute the allocation of service department costs to producing departments using the direct method.