Your Wreck, Inc., rebuilds old cars. It operates two production departments, mechanical repair and body work, and has three service departments for its plant: building occupancy, human resources, and equipment maintenance. Management is concerned that the costs of its service departments are getting too high. In particular, management would like to keep the costs of service departments under $500 per unit on average. You have been asked to allocate budgeted service department costs to the two production departments and compute the expected unit costs.

The company decided that building occupancy costs should be allocated on the basis of the number of square feet used by each production and service department. Human resources costs are allocated on the basis of the number of employees; equipment maintenance costs are allocated on the basis of the dollar value of the equipment in each department. The use of each basis by all departments during the current period follows:

Used By Building Human Equipment Mechanical Body Allocation Base Occupancy Resources Maintenance Repair Work Buiidingiarcay squitaweh 0.0... 5,000 15,000 10,000 180,000 45,000 EMDIOVECS Ane vucecernea coante ae 9 5 6 35 50

$ 12,000 $240,000 $ 35,000 $ 624,000 $324,000

$360,000 $500,000 $264,000 $1,350,000 $965,000 Equipment value...............6005 Budgeted departmental costs Required

a. Using the step method, determine the allocated costs and the total costs in each of the two producing departments. The allocation order is (1) building occupancy, (2) human resources, and (3)

equipment maintenance.

b. Assume that 1,000 units were processed in each of the two producing departments during the current period. Did the company meet management’s standards of keeping service department costs below $500 per unit?