Question
A plant operates its own steam-generation facility under the administration of the utilities department. The other service departments are janitorial and personnel. The assembly department
A plant operates its own steam-generation facility under the administration of the utilities department. The other service departments are janitorial and personnel. The assembly department manufactures the plant’s output, and the packaging department prepares the product for shipping. Plant management is comparing different methods of allocating service department costs. The following are annual data for the departments. Power costs are allocated per thousand cubic feet (MCF), janitorial per square foot, and personnel per employee.
Departments | |||||
Utilities | Janitorial | Personnel | Assembly | Packaging | |
MSF Steam | - | 4,000 | 6,000 | 50,000 | 40,000 |
Square Feet | 10,000 | - | 5,000 | 100,000 | 50,000 |
Employees | 30 | 30 | - | 120 | 80 |
Departmental Cost before allocation | $900,000 | $ 300,000 | $386,000 | $5,000,000 | $4,000,000 |
Equivalent Units Produced | 10,000 | 9,000 |
Required:
- The company is considering the step method to allocate service department costs. Total service department costs before allocation are used in determining the sequence of allocation with those departments having the highest costs allocated first. Prepare a schedule showing the cost per equivalent unit produced in the assembly department and in the packaging department.
- Determine total cost of the Utilities department which needs to be allocated based on the reciprocal method.
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