Question

University Printers has two service departments (Maintenance and Personnel) and two operating departments (Printing and Developing). Management has decided to allocate maintenance costs on the basis of machine-hours in each department and personnel costs on the basis of labor-hours worked by the employees in each.

The following data appear in the company records for the current period:

	Maintenance			Personnel			Printing			Developing
Machine-hours		—			2,000			2,000			3,000
Labor-hours		900			—			900			2,100
Department direct costs	$	5,600		$	15,600		$	17,300		$	13,800

Required:

Allocate the service department costs using the step method, starting with the Maintenance Department. (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations.)

	Maintenance	Personnel	Printing	Developing
Service department costs
Maintenance
Personnel
Total costs allocated

Answer 1

Step-down method of allocation:
Allocate Maintenace cost to custodial personnel,printing and developing
on the basis of machine hours @ 2000:2000:3000 or 2:2:3
Allocate personnel cost (including cost allocated from maintenance) to printing and developing
on the basis of number of labor hours @ 900:2100 or 3:7
				Maintenance	Personnel	Printing	Developing
Service department costs				5600	15600
Maintenance				-5600	1600	1600	2400
					(5600*2/7)	(5600*2/7)	(5600*3/7)
Personnel	Cost to be allocated=15600+1600=$17200				-17200	5160	12040
						(17200*3/10)	(17200*7/10)
Total				0	0	6760	14440