XYZ company has two service departments; Maintenance and Personnel and two producing departments, printing and developing. The maintenance department bills other departments based on the number of machine hours. In addition, the Personnel department bills the other departments based on the number of DL hours.
Additional data:
· The printing department uses 1000 machine hours per year and 500 DL hours per year.
· The developing department uses 3000 machine hours and 2000 DL hours per year.
· Maintenance uses 500 DL hours per year
· Personnel uses 1000 machine hours per year.
· Direct costs for the Maintenance department are $15,000
· Direct costs for the Personnel departments are $36,000.
Using the data above, please compute the amount of service costs that would be allocated under the Direct, Step Allocation, and reciprocal method.
For the step allocation method, the maintenance department will be allocated. In other words, the maintenance department is the first department to bill the other departments under the Step Method.