Question 4: Service department cost allocation

Inns Battery Company has two service departments: Maintenance and Personnel. Maintenance Department costs are allocated on the basis of budgeted maintenance-hours. Personnel Department costs are allocated based on the number of employees. Data on budgeted maintenance-hours and number of employees are as follows:

	Support Departments		Production Departments
	Maintenance Department	Personnel Department	A	B
Budgeted costs	$180,000	$30,000	$80,000	$120,000
Budgeted maintenance-hours	n/a	240	720	240
Number of employees	20	n/a	60	120

Required:

4a. Using the direct method, determine the amount of support department costs to be allocated to Production Department A.

4b. Using the step-down method, determine the amount of Maintenance Department costs to be allocated to Production Department A, if the service department with the highest percentage of interdepartmental support service is allocated first.

4c. Using the reciprocal method, determine the amount of maintenance department costs to be allocated to Production Department A (round up to nearest dollar).

4d. List and explain two possible reasons why a manager might prefer that budgeted rather than actual cost-allocation rates be used when cost is being allocated to his/her department from another department. Use the textbook and/or other relevant resources to support your answer.