The producing departments at Lisa Lewis Company are Parts Fabrication and Assembly. The three service departments are Building, Administration, and Engineering. Building maintains the plant facilities and the grounds. Administration is responsible for the scheduling, control, and accounting functions, while engineering plans and designs parts and procedures. Following are the annual budgets of direct charges and the budgeted operating data for all the departments.

Required:

a. Allocate the costs of the service departments using the step method. First, allocate Building based on floor space; next, Administration based on number of employees;
and finally, Engineering based on engineering-hours. Calculate factory overhead allocation rates using 800 estimated machine-hours for Parts Fabrication and 600 estimated machine-hours for Assembly.

b. Compute an overhead allocation rate per service unit using the direct method which charges no service department for services provided by other service departments.
Calculate factory overhead allocation rates using the same machine-hours as in Requirement a.

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Direct cost: Parts Building Administration Engineering Fabrication Assembly Total Indirect labor $400 $600 $280 $1,000 $ 800 $3,080 Indirect materials 60 130 .100 400 250 940 Indirect cost: Insurance 70 40 20 200 125 455 Depreciation 250 85 50 140 100 625 Total departmental costs $780 $855 $450 $1,740 $1,275 $5,100 Floor space (sq. ft.)... ....... 150 200 100 600 400 1,450 Number of employees 15 Engineering-hours 15 225 55 10 200 115 365 10 5 100 80 80 210