Answer:
The Ferre Publishing Company
Allocation of service department costs, using the direct method:
Service Departments Operating Departments
Admin. Janitorial Maintenance Binding Printing Total
Costs $77,000 $60,000 $39,000 $255,000 $486,000 $917,000
Admin. (77,000) 51,333 25,667 0
Janitorial (60,000) 13,333 46,667 0
Maintenance (39,000) 12,536 26,464 0
Total $0 $0 $0 $332,202 $584,798 $917,000
Explanation:
a) Data and Calculations:
Service Departments Operating Departments
Admin. Janitorial Maintenance Binding Printing Total
Costs $77,000 $60,000 $39,000 $255,000 $486,000 $917,000
Number
of employees 140 100 400 1,000 500 2,140
Square feet of space
occupied 4,500 18,000 15,000 30,000 105,000 172,500
Hours of press time 18,000 38,000 56,000
Allocation bases:
Administration (number of employees),
Janitorial (space occupied)
Maintenance (hours of press time).
Allocation rate:
Administration = $77,000/1,500 = $51.33
Janitorial = $60,000/135,000 = $0.44
Maintenance = $39,000/56,000 = $0.696
The direct method of allocating costs is relatively straightforward. It only involves the direct allocation of service departments' cost to the operating departments. Service departments' costs are not allocated to any service department, but they are allocated directly to the operating activities.
