Question 3 (15 marks)

A Ltd has two service departments, maintenance and IT support, that assist two production departments, assembly and machining. Budgeted costs of maintenance and IT support are $800,000 and $1,800,000 respectively. Usage of the service departments' output during the year is anticipated to be:

Services provided to:

Maintenance

IT support

Assembly

Machining

Services provided by:

Maintenance

-

20%

20%

60%

IT support

10%

-

60%

30%

Required:

a) Use the direct method to allocate the costs of maintenance and IT support departments to assembly and machining departments. Please show all calculations/workings.