Allocation of service department costs 20X5

Maintenance Janitorial Letters

Expressdelivery

parcels

Regulardelivery

parcels Total

Service department

costs $1,310,400 $2,620,800

Maintenance

machine hours 50 2,800 225 400 3,475

Janitorial

square metres 500 1,200 1,650 1,750 5,100

Prepare cost allocations of the janitorial and maintenance departments to the production departments (Letters, Express delivery parcels and Regular delivery parcels) of a delivery company using: i. the direct method (3 marks) ii. the step method (begin with the janitorial costs) (3 marks) Show total costs under each of the product department after the allocation. b) Discuss which method provides the more reasonable allocation of service department costs to the production departments for this delivery service company and explain why it is the better method (2 marks)