Question

The building maintenance department for the Steering Manufacturing Company budgets annual costs of $5,402,000 based on the expected operating level for the coming year. The costs are allocated to two production departments. Steering is considering two allocation bases for assignment of costs to departments: (1) square footage and (2) direct labor hours. The following data relate to the potential allocation bases:

		Production Dept. 1			Production Dept. 2
Square footage		31,660			41,340
Direct labor hours		41,340			31,660

Calculate the costs allocated to the production departments using each allocation base. (Round answers to 0 decimal places, e.g. 5,275. Do not round intermediate calculations.)

		Production Dept. 1		Production Dept. 2
Square footage		$		$
Direct labor hours		$		$

Answer 1

Allocation on basis of Sq. ft:
Depptt		Sq. ft	% of total	Total cost		Cost
				to be allocated	allocated
Production Dept 1	31660	43.37%	5402000		2342840
Production Dept 2	41340	56.63%	5402000		3059160
Total		73000	100.00%	5402000		5402000
Allocation based on DLH
Depptt		DLH	% of total	Total cost		Cost
				to be allocated	allocated
Production Dept 1	41340	56.63%	5402000		3059160
Production Dept 2	31660	43.37%	5402000		2342840
Total		73000	100.00%	5402000		5402000
		Dept 1	Dept 2
Square footage	2342840	3059160
DLH		3059160	2342840