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	$	110,000
Assembly		76,000
Maintenance		49,000		—		0.2		0.6		0.2
Cafeteria		37,000		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

a) 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

b) Allocation of cost :

	Maintenance	Cafeteria	Machining	Assembly
Direct costs	49000	37000	110000	76000
Allocation of cafeteria cost	29600	-37000	3700	3700
Allocation of maintenance cost	-78600	0	58950	19650
Total cost	0	0	172650	99350