1. 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 (assigned first). In other words, the maintenance department is the first department to bill the other departments under the Step Method.
Allocation of Maintenance cost
Total machine hours used by operating department and Personnel = 1000+3000 +1000 =5000
Maintenance cost allocated to printing department = 15000*1000/5000 =$3000
Maintenance cost allocated to developing department = 15000*3000/5000 =$9000
Maintenance cost allocated to Personnel department = 15000*1000/5000 =$3000
Allocation of Personnel departments cost
Total DL = 500+2000 = 2500 hours
Personnel departments cost allocated to printing department =36000*500/2500=$7200
Personnel departments cost allocated to Developing department =36000*2000/2500=$28800
The following information is for questions 2 - 6.
A company has two service departments (S1 and S2) and two manufacturing divisions (M1 and M2). The following information is available. Please note that activity has been given as percentages.
|
|
|
Proportion of services provided to:
|
|
Costs incurred
|
Service department
|
S1
|
S2
|
M1
|
M2
|
|
$290,000
|
S1
|
-
|
20%
|
30%
|
50%
|
|
500,000
|
S2
|
50%
|
-
|
20%
|
30%
|
2. Using the direct method, what proportion of S1's costs will be allocated to M2? Hint, when calculating the percentage of activity, only the producing departments (M1 and M2) will be used. Therefore M1's activity percentage is 30/80 = 37.5%
a. 20%.
b. 37.5%.
c. 50%.
d. 62.5%.
3. Using the direct method, how much of the service department costs will be allocated to M1?
a. $195,250.
b. $205,750.
c. $308,750.
d. $326,450.
4. Using the step method, how much of the service department costs will be allocated to M1?
a. $243,000.
b. $265,700.
c. $295,400.
d. $302,500.
5. Using the reciprocal method, how should the total service department costs of S1 be expressed?
a. S1 = $290,000 + .5 × S2.
b. S1 = $290,000 + .2 × S2.
c. S1 = $290,000 + .3 × S2.
d. S1 = $500,000 + .5 × S2.
6. Using the reciprocal method, how much of the service department costs will be allocated to M1?
a. $241,000.
b. $286,000.
c. $304,000.
d. $403,000.