Question

University Printers has two service departments (Maintenance and Personnel) and two operating departments (Printing and Developing). Management has decided to allocate maintenance costs on the basis of machine-hours in each department and personnel costs on the basis of labor-hours worked by the employees in each.

The following data appear in the company records for the current period:

	Maintenance			Personnel			Printing			Developing
Machine-hours		—			1,000			1,000			3,000
Labor-hours		500			—			500			2,000
Department direct costs	$	5,000		$	12,000		$	15,000		$	10,000

Required:

Use the direct method to allocate these service department costs to the operating departments. (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations.)

Answer 1

Answer:

Allocation of service department costs to the operating departments using direct method:

Particulars	Maintainance	Personnel	Printing	Developing
Direct Cost	$5,000	$12,000
Less: Apportionment of maintenance Deptt. cost (1000: 3000)	-$5,000		$1250	$3,750
Less: Apportionment of Personnel Deptt. cost (500:2000)	$0	-$12,000	$2,400	$9,600
Total	$0	$0	$3,650	$13,350

Note:

Maintenance department costs are allocated on the basis of machine-hours and personnel department costs are allocated on the basis of labor-hours worked by the employees.