Question

University Printers has two service departments (Maintenance and Personnel) and two operating departments (Printing and Developing). Management has decided to allocate maintenance costs on the basis of machine-hours in each department and personnel costs on the basis of labor-hours worked by the employees in each. The following data appear in the company records for the current period:
Maintenance Personnel Printing Developing
Machine-hours — 1,800 1,800 5,400
Labor-hours 650 — 650 2,600
Department direct costs $4,000 $14,000 $15,900 $12,600
Required:
Use the direct method to allocate these service department costs to the operating departments. (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations.)
Maintenance Personnel Printing Developing
service dept. costs
maintenance allocation
personnel allocation
total cost allocation

Answer 1

Answer:

Maintenance $0

Personnel $0

Printing $19,700

Developing $26,800

Explanation:

Calculation to allocate these service department costs to the operating departments Using the direct method

Particulars Allocation Basis Maintenance Personnel Printing Developing

Cost as per primary data

$4,000 $14,000 $15,900 $12,600

SERVICE DEPARTMENT COSTS:

Maintenance allocation (S)

$0 $0 $1,000 $3,000

Personnel allocation (S)

$0 $0 $2,800 $11,200

Total Costs Allocated

$0 $0 $19,700 $26,800

Computation for the allocation of costs:

Maintenance = $4,000 *1,800/(1,800+5,400)

Maintenance = $4,000 *1,800/7,200

Maintenance =$1,000

Personnel = $14,000 *650/650+2,600

Personnel=$14,000 *650/3,250

Personnel=$2,800

Maintenance = $4,000 *5,400/(1,800+5,400)

Maintenance = $4,000 *5,400/7,200

Maintenance = $3,000

Personnel = $14,000 *2,600/650+2,600

Personnel = $14,000 *2,600/3,250

Personnel = $11,200

Therefore allocation of these service department costs to the operating departments Using the direct method will be :

Maintenance $0

Personnel $0

Printing $19,700

Developing $26,800