Managerial decision case

The Prairie Corporation is a furniture manufacturer that is beginning its first month of operations. You have been hired to work in the cost accounting department and to establish procedures for recording factory costs. The factory is organized into three producing departments and two service departments.

Cutting Department All wood is cut into the appropriate pieces for assembling.

Assembly Department All pieces of wood are received from the Cutting Department and are assembled into the various pieces of furniture. The wood is either glued or screwed into place.

Finishing Department The finished furniture is transferred to this department, where it is sanded, stained, and polished. From this department it is transferred to Finished Goods

Building Maintenance Department The employees in this department are responsible for cleaning each of the producing departments at the end of the day. In addition, they clean the tools used and perform any required repairs and sharpening.

General Factory Department This department is responsible for the payroll of all employees. This responsibility includes recording time cards and time tickets. The cost accounting records are are also maintained by this department. These include materials ledger cards, job cost sheets, and finished goods and stock ledger cards. Daily materials requisitions are recorded and posted to the appropriate records.

1. Which service department costs would you allocate first? Why?

2. What basis would yo suggest be used to allocate the Building Maintenance Department costs and the General Factory Department costs to the producing departments? Why?