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