(15 points) Lovett Company has three production and three service departments: Department Direct Expenses Labor Hours...
- (15 points) Lovett Company has three production and three service departments:
|
Department |
Direct Expenses |
Labor Hours |
Square Feet |
# Employees |
|
Grinding |
$10,000 |
3,000 |
700 |
60 |
|
Forming |
8,000 |
2,500 |
600 |
40 |
|
Finishing |
7,000 |
2,050 |
400 |
30 |
|
Office Services |
5,000 |
2,500 |
300 |
30 |
|
Building Services |
6,000 |
4,000 |
200 |
20 |
|
Employee Services |
9,000 |
4,000 |
200 |
40 |
|
Total |
$45,000 |
18,050 |
2,400 |
220 |
The service departments allocate costs using the following bases:
|
Service Departments |
Cost Allocation Base |
|
Office Services |
Labor Hours |
|
Building Services |
Square Feet |
|
Employee Services |
# of Employees |
Required:
- Allocate support costs using the following methods:
- Direct
- Step-down
- Reciprocal
- Which method do you recommend? Why?
Homework Answers
I recommend the Reciprocal methode . Because, That is the most accurate methode. The reciprocal method allocates services department costs to operating departments and other service departments.
In direct methode, Services used by other service departments are ignored.
In Step down methode, Costs are not allocated back to a department (service department) that has already had all of its costs allocated.
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(15 points) Lovett Company has three production and three
service departments:
Department
Direct Expenses
Labor Hours...
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Labor hours are 80,000 Materials & 40,000 Assembly
floor space
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40% Assemly
50% Machining
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