Direct method and sequential method of distributing service department costs A manufact...

Direct method and sequential method of distributing service department costs

A manufacturing company has two service and two production departments. Building Maintenance and Factory Office are the service departments. The production departments are Grinding and Polishing.

The following data have been estimated for next year’s operations:

The direct charges identified with each of the departments are as follows:

Building maintenance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $100,000

Factory office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150,000

Grinding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 450,000

Polishing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 350,000

The building maintenance department services all departments of the company, and its costs are allocated using floor space occupied, while factory office costs are allocable to Grinding and Polishing on the basis of direct labor hours.

1. Distribute the service department costs, using the direct method.

2. Distribute the service department costs, using the sequential distribution method, with the department servicing the greatest number of other departments distributed first.