Question

The Merchant Manufacturing Company has two service departments — purchasing and maintenance, and two production departments — fabrication and assembly. The distribution of each service department's efforts to the other departments is shown below:

FROM	TO
	Purchasing			Maintenance			Fabrication			Assembly
Purchasing		0	%		35	%		50	%		15	%
Maintenance		45	%		0	%		45	%		10	%

The direct operating costs of the departments (including both variable and fixed costs) were as follows:

Purchasing	$	102,000
Maintenance		24,000
Fabrication		78,000
Assembly		54,000

The total cost accumulated in the assembly department using the step method is (calculate all ratios and percentages to 4 decimal places, for example 33.3333%, and round all dollar amounts to the nearest whole dollar):

• $86,855.

• $177,845.

• $92,605.

• $80,155.

• $172,395.

Answer 1

calculation of total cost accumulated in the assembly department using step method :

	Purchasing	Maintenance	Fabrication	Assembly
direct operating costs	$102000	$24000	$78000	$54000
allocation :
purchasing	-102000	102000 x 35% = 35700	102000 x 50% = 51000	102000 x 15% = 15300
maintenance	0	-59700	59700 x 81.8181% = $48845	59700 x 18.1818% = 10855
total cost	0	0	$177845	$80155

The total cost accumulated in the assembly department using the step method is $80155.

so correct option is d) $80155.

calculation of ratio :

for allocation of purchasing department costs

maintenance : fabrication : assembly = 35% : 50% : 15%

for allocation of maintenance department costs

fabrication : assembly = 45% : 10% = 45 + 10 = 55

% of fabrication = 45 x 100/55 = 81.8181%

% of assembly = 10 x 100/55 = 18.1818%

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