Question

Frederick Company has two service departments (Cafeteria Services & Maintenance). Frederick has two production departments (Assembly Department & Packaging Department.) Frederick uses a step allocation method where Cafeteria Services is allocated to all departments and Maintenance Services is allocated to the production departments. All allocations are based on total employees. Cafeteria Services has costs of $250,000 and Maintenance has costs of $245,000 before any allocations. What amount of Maintenance total cost is allocated to the Packaging Department? (round to closest whole dollar)

Employees are:

Cafeteria Services 5

Maintenance 5

Assembly Department 7

Packaging Department 10

Answer 1

Statement showing allocation of Cafeteria Service charges:

Total Cafeteria service charges = $ 250,000

To be allocated among Maintenance, Assembly and Packaging departments, based on number of employees of each department.

Total Number of employees of above mentioned departments = 22 (5+7+10)

Department	Calculation	Amount allocated
Maintenance	$ 250,000 x 5/22	$ 56,818
Assembly	$ 250,000 x 7/22	$ 79,545
Packaging	$ 250,000 x 10/22	$ 113,636
Total		$ 250,000

Calculation showing allocation of Maintenance cost:

Total Maintenance cost = $ 245,000 + $ 56,818 (allocated) = $ 301,818

To be allocated between Assembly and Packaging departments, based on number of employees of each department.  

Total Number of employees of above mentioned departments = 17 (7+10)

Cost to be allocated to Packaging department = $ 301,818 x 10/17 = $ 177,540