Question

Lewis Custom Manufacturing produces kitchen cabinets in a two-step production process - cutting and sanding. The manufacturing center is supported by two service centers - a health clinic and a janitorial service. The following table reveals certain facts about each activity: Health Clinic Janitorial Service Sanding Department Employees Square footage Cost incurred Cutting Department 15 36,000 $2,800,000 3,600 $720,000 1,800 $500,000 24,000 $3,200,000 a) Using the direct method, allocate the service department costs to production. The clinic costs are to be allocated based on employees, and the janitorial costs are to be allocated based on the square footage. b) Using the step method, allocate the service department costs to production. The clinic costs are to be allocated based on employees, and the janitorial costs are to be allocated based on the square footage. The first step will be to allocate clinic costs. The clinic employees maintain their space and do not rely upon the janitorial service. However, janitorial employees occasionally sustain an injury and utilize the clinic. Worksheet 5 Health Clinic 720,000 Janitorial Service $ 500,000 Cutting Department 2,800,000 Sanding Department 3,200,000 Cost incurred Clinic allocation $ $

Answer 1

a) Allocation of the cost - direct method particular Health Janitorial cutting sanding linics Service(s) Departmental Departments cost incurred 720000 500000 2800,000 3,200.000 Janitorial allocations 72000) clinic allocation (720, 000) - 308. SL41), 424 Janitorial allocation! 200,000 Total cost $o s o 3,408 571 3,8 11,4297 16500,000) 200 300,000 @clinic allocation:-om.basis of employees cutting Department = $720,000 *__ $308571 Sanding Department - $ 720,000x_20 -41,429 35 - 3.5 (i) Janitorial collocati osin basis of square footage cutting Department 2502000 x_$36.000 $ 60,000 =$300,000 - sanding Department = $ 500.000 X $ 24,000 $ 60000 $200,000 (6) Allocation of the cost - step method particular Health Jonitorial cutting sanding clinice service (s) Departments Department ($) cast Inkurred 720,000 500,000 2,800 000 3,200,000 clinic collocation (720,000) 105,366 263 415 351,220 Tanitorial (605,366) 363.220 242146. allocation Total cost is 3,426 635 3793366

alclinic allocation: Basis of employees Total employer including Janitonas services z = 6+ is +20= 4 employees Janitorial service = $720,000 x 6 41 = $105,366 cutting Department = $720,000 X. 13 - $263,4 15 Sanding Department = $720,000x 20 = $351 220 Jeni teras allocatia: on the basis of square footage catting beport mert a -($500,000 +$ 105,366) x_$36000 $ 60,000 38363.220 canding Department $24000 = ($500,000& +$ 105,366)X = 60.000 = $242, 146
The cost allocation is the distribution of cost to different departments.These costs are divided on the various basis such as number of employees, area, number of switches, value of plant and value of inventory. Therefore, we get total cost of each department for particular period.