Question
Williams manufactures a variety of iron products, made to customer specifications, in small batches. Willie Williams, owner, is concerned that he does not have an
Williams manufactures a variety of iron products, made to customer specifications, in small batches. Willie Williams, owner, is concerned that he does not have an accurate understanding of the costs of production. You, a newly-minted MBA, have researched his business and identified various costs and cost drivers.
| Janitorial | Welding |
| HR |
| Data Svcs | Assembly |
| Total | ||||||||
Own costs | $ | 12,000 |
| $ | 90,000 |
| $ | 37,200 |
| $ | 32,400 |
| $ | 54,000 |
| $ | 225,600 |
Square feet |
| 500 |
|
| 3,000 |
|
| 1,500 |
|
| 2,000 |
|
| 4,500 |
|
| 11,500 |
# employees |
| 7 |
|
| 25 |
|
| 8 |
|
| 10 |
|
| 75 |
|
| 125 |
# transactions (thou) |
| 30 |
|
| 100 |
|
| 180 |
|
| 600 |
|
| 140 |
|
| 1,050 |
Power usage |
| 22 |
|
| 730 |
|
| 11 |
|
| 17 |
|
| 220 |
|
| 1,000 |
The service departments (Janitorial, HR, and Data Services) are allocated to the two production departments (Welding and Assembly). Janitorial costs are allocated using square feet, HR using number of employees, and Data Services using number of transactions. You recall that there are several approaches to the allocation of service department costs, direct, step-down and reciprocal methods.
If the step-down method is used in this case, which sequence of allocations is the most valid?
A. Data, Janitorial, HR
B. HR, Data, Janitorial
C. Data, HR, Janitorial
D. Janitorial, Welding, HR, Data Svcs, Assembly
E. All sequences above are acceptable
If the step-down method is applied, and allocating the service departments in the order of costs incurred (which is not the correct method to allocate costs under the step-down method), but we will go with it for now, which is true?
A. Janitorial's total costs after allocation are $18,036.48
B. Assembly's total costs after allocation are less than $100,000
C. Janitorial is allocated $3,953.28 from Data Svcs
D. HR's total costs after allocation are $50,160
E. None of the choices are correct
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