LO.6, 7 Lavender Manufacturing Company began business in the current year. The company uses the simplified method to allocate mixed services costs to production. The company’s costs and expenses for the year were as follows:

Direct labor $2,950,000 Direct materials 2,500,000 Factory supervision 500,000 Personnel department 300,000 Computer operations 150,000 General administration 400,000 Marketing 310,000 State income tax 90,000

$7,200,000

a. Determine Lavender’s total production costs for the year.

b. Assume that the hourly pay for direct labor is much higher than the hourly pay for employees in general administration and that the employee turnover is much higher for general administration than for production employees. Also, general administration receives much more in services from computer operations than is received by production. How should these facts affect the company’s decision to use the simplified mixed services method to allocated mixed services costs to production?