Question
A manufacturing company has two service and two production departments. Building Maintenance and Factory Office are the service departments. The production departments are Assembly and
A manufacturing company has two service and two production departments. Building Maintenance and Factory Office are the service departments. The production departments are Assembly and Machining. The following data have been estimated for the next year's operations.
Direct labor hours: Assembly, 80,000; Machining 40,000
Floor space occupied: Factory Office 10%; Assembly 40%; Machining 50%
The direct charges identified with each of the departments are as follows:
Building maintenance: $90,000
Factory office: $171,000
Assembly: $378,000
Machining: $328,000
The building maintenance department services all departments of the company, and its costs are allocated using floor space occupied, while factory office costs are allocable to Assembly and Machining on the basis of direct labor hours.
1. Distribute the service department costs, using the direct method.
2. Distribute the service department costs, using the sequential distribution method, with department servicing the greatest number of other departments distributed first.
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