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		73,000
Maintenance		45,000		—		0.1		0.7		0.2
Cafeteria		33,000		0.7		—		0.1		0.2

Required:

Use the step method to allocate the service costs, using the following:

a. The order of allocation starts with Maintenance.

	To
From	Maintenance	Cafeteria	Machining	Assembly
Service department costs
Maintenance
Cafeteria
Total Costs	$0	$0	$0	$0

b. The allocations are made in the reverse order (starting with Cafeteria).

	To
From	Cafeteria	Maintenance	Machining	Assembly
Service department costs
Cafeteria
Maintenance
Total Costs	$0	$0	$0	$0

Answer 1

a. The order of allocation starts with Maintenance.

	To From Maintenance Cafeteria Machining Assembly Service department costs 45000 33000 Maintenance -45000 4500 31500 9000 Cafeteria 0 -37500 12500 25000 Total Costs $0 $0 44000 34000

b. The allocations are made in the reverse order (starting with Cafeteria).

	To From Cafeteria Maintenance Machining Assembly Service department costs 33000 45000 Cafeteria -33000 23100 3300 6600 Maintenance -68100 52967 15133 Total Costs $0 $0 56267 21733