Cost Allocations- Direct Method : Meridian Box Company has two service departments (maintenance and general factory administration) and two operating departments (cutting and assembly). Man- agement has decided to allocate maintenance costs on the basis of the area in each department and general factory administration costs on the basis of labor-hours worked by the employees in each of their respective departments.

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

Required: Use the direct method to allocate these service department costs to the operating departments.

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Area occupied (square feet) Labor-hours Direct labor costs (operating departments only) Service department direct costs General Factory Administration Maintenance Cutting Assembly 1,000 1,000 3,000 100 100 400 $1,500 $4,000 $12,000 $20,000