Homework SourseCaro Manufacturing has two production departments Machining
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:
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.)
| Proportion of Services Used by | |||||||||||
| Department | Direct Costs | Maintenance | Cafeteria | Machining | Assembly | ||||||
| Machining | $ | 110,000 | |||||||||
| Assembly | 76,000 | ||||||||||
| Maintenance | 49,000 | — | 0.2 | 0.6 | 0.2 | ||||||
| Cafeteria | 37,000 | 0.8 | — | 0.1 | 0.1 | ||||||
Solution
a) Allocation of cost :
b) Allocation of cost :
| Maintenance | Cafeteria | Machining | Assembly | |
| Direct costs | 49000 | 37000 | 110000 | 76000 |
| Allocation of maintenance cost | -49000 | 9800 | 29400 | 9800 |
| Allocation of cafeteria cost | -46800 | 23400 | 23400 | |
| Total cost | 0 | 0 | 162800 | 109200 |
