Majestic Manufacturing Company has three service departments: maintenance, cafeteria, and material handling. The company also has two operating departments: fabrication and assembly. The service departments provide services to each other as well as to the operating departments. The bases for service department cost allocation are as follows:

Service costs are assigned using the step-down method in the following department order:
1. Maintenance 2. Cafeteria 3. Material handling The following costs were incurred during the most recent quarter of operations:

The following operating data relate to the most recent quarter of operations:

In addition to the above, the fabrication department incurred \(\$ 1,240,000\) of manufacturing overhead, and the assembly department incurred \(\$ 1,536,000\) of manufacturing overhead during the most recent quarter.

\section*{Required}
A. Determine the amounts that should be used as a basis for allocating service costs to each of the operating departments, assuming the step-down method is used.
B. Prepare a cost allocation schedule for the most recent quarter using the step-down method.
C. Determine the total costs of operating the fabrication and assembly departments for the most recent quarter.
D. Which operating department consumes more indirect resources?
E. How would you respond to complaints from the assembly department manager who believes his/her department received a disproportionate share of indirect overhead cost?

Transcribed Image Text:

Department Maintenance Cafeteria Material handling Allocation Base Square footage occupied Number of employees Direct labor hours