Question
e following information applies to the questions displayed below. ] Caro Manufacturing has two production departments, Machining and Assembly, and two service departments, Maintenance and
e following information applies to the questions displayed below.]
Caro Manufacturing has two production departments, Machining and Assembly, and two service departments, Maintenance and Cafeteria. Direct costs for each department and the proportion of service costs used by the various departments for the month of August follow:
Proportion of Services Used by | |||||||||||
Department | Direct Costs | Maintenance | Cafeteria | Machining | Assembly | ||||||
Machining | $ | 91,000 | |||||||||
Assembly | 60,400 | ||||||||||
Maintenance | 37,600 | 0.2 | 0.5 | 0.3 | |||||||
Cafeteria | 30,000 | 0.8 | 0.1 | 0.1 | |||||||
Required:
Compute the allocation of service department costs to producing departments using the direct method. (Do not round intermediate calculations.)
The previous attempt (shown below) was incorrect. There must be another way to solve.
Solution
Caro Manufacturing
Direct Method of Cost Allocation
Explanation:
The direct method of cost allocation allocates costs of service departments to each of production departments based on their respective share of the allocation base. Services offered to other service departments are ignored.
Department | Maintenance | Cafeteria | Machining | Assembly |
Direct Costs | $37,600 | $30,000 | $91,000 | $60,400 |
Maintenance Cost Allocation | ($37,600) | 0 | $23,500 | $14,100 |
Cafeteria Cost Allocation | 0 | ($30,000) | $15,000 | $15,000 |
Total Costs | 0 | 0 | $129,500 | $89,500 |
Computations:
Allocation of Maintenance cost to Machining and Assembly
Direct costs of Maintenance department = $37,600
Total proportion of allocation basis = 0.5 + 0.3 = 0.8
Maintenance department cost allocated to Machining = $37,600 x 0.5/0.8 = $23,500
Maintenance department cost allocated to Assembly = $37,600 x 0.3/0.8 = $14,100
Allocation of Cafeteria cost to Machining and Assembly
Direct costs of Cafeteria department = $30,000
Total proportion of allocation basis = 0.1 + 0.1 = 0.2
Cost allocated to Machining = $30,000 x 0.1/0.2 = $15,000
Cost allocated to Assembly = $30,000 x 0.1/0.2 = $15,000
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