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	%		65	%		20	%		15	%
Maintenance		15	%		0	%		75	%		10	%

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

Purchasing	$	120,000
Maintenance		42,000
Fabrication		96,000
Assembly		72,000

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

Answer 1

	Service Department		Production Departments
	Purchasing	Maintenance	Fabrication	Assembly
Direct Operating Costs	$ 120,000	$ 42,000	$ 96,000	$ 72,000
Purchasing ( 65 : 20 : 15)	($ 120,000)	$ 78,000 ( $ 120,000 x 65 / 100 )	$ 24,000 ( $ 120,000 x 20 / 100 )	$ 18,000 ( $ 120,000 x 15 / 100 )
Maintenance ( 75 : 10 )		($ 120,000 )	$ 105,882 ( $ 120,000 x 75 /85 )	$ 14,118 ( $ 120,000 x 10 /85 )
Total	$ 0	$ 0	$ 225,882	$ 104,118
The total cost accumulated in fabrication department   =	$ 225,882