Question

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: Proportion of Services Used by Department Direct Costs Maintenance Cafeteria Machining Assembly Machining $ 130,000 Assembly 79,000 Maintenance 46,000 — 0.1 0.7 0.2 Cafeteria 34,000 0.8 — 0.1 0.1 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.)

Answer 1

Solution a:

From	Service Department Cost Allocation - Step Method (Allocation of Maintenance First)
	Service Department		Production Departments
	Maintenance	Cafeteria	Machining	Assembly
Direct charges of department	$46,000	$34,000	$130,000	$79,000
Maintenance (1:7:2)	-$46,000	$4,600	$32,200	$9,200
Cafeteria (1:1))		-$38,600	$19,300	$19,300
Total	$0	$0	$181,500	$107,500

Solution b:

From	Service Department Cost Allocation - Step Method (Allocation of Cafeteria First)
	Service Department		Production Departments
	Maintenance	Cafeteria	Machining	Assembly
Direct charges of department	$46,000	$34,000	$130,000	$79,000
Cafeteria (8:1:1))	$27,200	-$34,000	$3,400	$3,400
Maintenance (7:2)	-$73,200		$56,933	$16,267
Total	$0	$0	$190,333	$98,667