EXERCISE 6-7. Allocation of Service Department Costs [LO 1] The building maintenance department for the Taylor Manufacturing Company budgets annual costs of $5,250,000 based on the expected operating level for the coming year. The costs are allocated to two production departments. Taylor is considering two allocation bases for assignment of costs to departments: (1) square footage and (2) direct labor hours. The following data relate to the potential allocation bases:

	Production Dept. 1	Production Dept. 2
Square footage	30,000	40,000
Direct labor hours	40,000	30,000

Calculate the costs allocated to the production departments using each allocation base. Comment on which allocation base is preferable.

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