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	$	135,000
Assembly		84,000
Maintenance		51,000		—		0.3		0.3		0.4
Cafeteria		36,000		0.7		—		0.2		0.1

Required:

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

a. The order of allocation starts with Maintenance.

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

Answer 1

Solution a and b:

Service Department Cost Allocation - Step Method (Allocation of Maintenance First) From Production Departments Machining Assembly Service department costs Maintenance (0.3:0.3:0.4) Cafeteria (0.2: 0.1) Total Service Department Maintenance Cafeteria / $51,000 $36,000 $51,000 $15,300 $51,300 $0 9 $15,300 $34,200 $49,500 $20,400 $17,100 $37,500 Service Department Cost Allocation - Step Method (Allocation of Cafeteria First) From Production Departments Machining Assembly Service Department Maintenance Cafeteria $51,000 $36,000 $25,200 -$36,000 -$76,200 $0 $0 $0 Service department costs Cafeteria (0.7:0.2:0.1) Maintenance (0.3:0.4) Total costs 16 $7,200 $32,657 $39,857 $3,6001 $43,543 $47,143 20 22 23 24 et840 Sheet842 Sheet861 Sheet862 Sheet863 Sheet8 (5) Sheet367 (3) Sheet866