The Lake Corporation is a furniture manufacturer that is beginning its first month of operations. You have been hired to work in the cost accounting department and to establish procedures for recording factory costs. The factory is organized into three producing departments and two service departments.

Cutting Department. All wood is cut into the appropriate pieces for assembling.

Assembling Department. All pieces of wood are received from the Cutting Department and are assembled into the various pieces of furniture. The wood is either glued or screwed into place.

Finishing Department. The unfinished furniture is transferred to this department, where it is sanded, stained, and polished. From this department it is transferred to Finished Goods.

Building Maintenance Department. The employees in this department are responsible for cleaning each of the producing departments at the end of the day. In addition, they clean the tools used and perform any required repairs and sharpening.

General Factory. This department is responsible for the payroll of all employees. This responsibility includes recording time cards and time tickets. The cost accounting records are also maintained by this department. These include materials ledger cards, job cost sheets, and finished goods and stock ledger cards. Daily materials requisitions are recorded and posted to the appropriate records.

The square feet occupied by each department and the number of employees in each department are given below:

Prepare a report for the corporate controller explaining how you would prorate the costs of the service departments to the producing departments. Include a table indicating the bases of allocation. In addition, show any percentages that would be used. (Carry percents to five places and round to four.) You should also determine the sequence in which the costs of the service departments will be allocated. Give reasons for all of your recommendations.

Transcribed Image Text:

Department Square Feet Occupied Number of Employees Cutting 3,750 20 Assembling 5,000 40 Finishing 3,250 40 Building Maintenance 1,200 10 General Factory 1,000 10