12-45 Direct Method for Service Department Allocation Kazuo Piano Company has two producing departments, traditional pianos and electronic pianos. In addition, there are two service departments, building services and materials receiving and handling. The company purchases a variety of component parts from which the departments assemble pianos for sale in domestic and international markets. The electronic pianos division is highly automated. The manufacturing costs depend primarily on the number of subcomponents in each piano. In contrast, the traditional pianos division relies primarily on a large labor force to hand-assemble pianos. Its costs depend on direct-labor hours. The costs of building services depend primarily on the square footage occupied. The costs of materials receiving and handling depend primarily on the total number of components handled. Pianos M1 and M2 are produced in the traditional pianos department, and E1 and E2 are produced in the electronic pianos department. Data about these products follow: MI M2 El E2 Direct- Materials Cost $740 Number of Components Direct- Labor Hours 110 3.0 860 90 6.0 630 1:00 1.5 910 200 1.0 Budget figures for 20X7 include the following: Building Service Materials Receiving and Handling Direct department costs (excluding direct materials cost) $1,500,000 $1,200,000 Traditional Pianos $6,800,000 Electronic Pianos $5,480,000 Square footage occupied 5,000 Number of final pianos produced Average number of components per piano 50,000 25,000 8,000 10,000 100 160 30,000 8,000 Direct-labor hours 1. Allocate the costs of the service departments using the direct method. 2. Using the results of number 1, compute the cost per direct-labor hour in the traditional pianos department and the cost per component in the electronic pianos department. 3. Using the results of number 2. compute the cost per unit of product for pianos MI, M2. EI. and E2. 12-46 Step-Down Method for Service Department Allocation Refer to the data in Problem 12-45. 1. Allocate the costs of the service departments using the step-down method. 2. Using the results of number 1, compute the cost per direct-labor hour in the traditional pianos department and the cost per component in the electronic pianos department. 3. Using the results of number 2, compute the cost per unit of product for pianos M1, M2. EI, and E2 CHAPTER 12