Question

Use the direct method to allocate the following service costs to the operating departments. Source: Garrison 7e, Appendix A, McGraw Hill 2006 Kovac Printing Company has three service departments and two operating departments. Selected data for the five departments relating to the most recent period follow: Service Department Training Janitorial Maintenance $ 360,000 $ 210,000 $ 96,000 120 280 1.000 2,000 4000 Overhead costs Number of employees Square metres of space occupied Press time hours Operating Department Offset Printing Lithography $ 400,000 $ 534,000 630 420 8.000 20,000 30,000 60,000 70 Total $1,600,000 1520 35,000 90,000

Answer 1

Kovac Printing Company Service Departments Training Janitorial costs Maintenance costs 360000 210000 96000 Operating Departments Offset Priniting Lithography 400000 534000 Total 934000 -360000 216000 144000 Departmental costs before allocations Allocations: Training Janitorial costs Maintenance costs Total costs after allocations -210000 -96000 60000 32000 708000 150000 64000 892000 0 0 934000 Administration costs Allocation base: 630 employees +420 employees = 1050 employees Binding: $360,000 X 630/1050 = $216,000 Printing: $360,000 x 420/1050 = $144,000 Janitorial costs Allocation base: 8,000 square feet +20,000 square feet = 28,000 square feet Binding: $210,000 Ⓡ8,000/28,000 = $60,000 Printing: $210,000 x 20,000/28,000 = $150,000 Maintenance costs Allocation base: 30,000 hours + 60,000 hours = 90,000 hours Binding: $96,000 x 30,000/90,000 = $32,000 Printing: $96,000 x 60,000/90,000 = $64,000