Question

Arbon Company has three service departments and two operating departments. Selected data concerning the five departments are presented below:

	Service Departments									Operating Departments
	Administrative			Janitorial			Equipment Maintenance			Prep			Finishing			Total
Costs	$	84,000		$	67,800		$	36,000		$	256,100		$	498,600		$	942,500
Number of employees		80			60			240			600			300			1,280
Square metres of space occupied		300			1,200			1,000			2,000			7,000			11,500
Machine-hours											10,000			30,000			40,000

     The company allocates service department costs by the step-down method in the following order: Administrative (number of employees), Janitorial (space occupied), and Equipment Maintenance (machine-hours).

Required:
Assuming that the company uses the direct method rather than the step-down method to allocate service department costs, how much overhead cost would be assigned to each operating department? (Negative amounts should be indicated by a minus sign.)

Answer 1

Direct Method
					Equipment
Particulars			Administrative	Janitorial	Maintenance	Prep	Finishing
Costs			$          84,000	$             67,800	$         36,000	$          256,100	$          498,600
Allocating costs of :
Administrative			$        (84,000)			$            56,000	$            28,000
Janitorial				$            (67,800)		$            15,067	$            52,733
Equip. Maintenance					$       (36,000)	$              9,000	$            27,000
Total Costs						$          336,167	$          606,333