Please help me understand by showing your work. 1) A company has two production
ID: 2445066 • Letter: P
Question
Please help me understand by showing your work.
1) A company has two production departments. Assembly and Packaging and two service departments: maintenance and personnel. Maintenance costs for the period total $20,000 and personnel costs total $9,000. All service departments costs are allocated based on number of employees. Assembly has 1,000 employees, packaging has 1,500, maintenance has 100 and personnel has 80. What will be the amount of personnel costs allocated to assembly using the direct method?
Explanation / Answer
Direct allocation method is one of the four techniques used to reallocate service departments' overheads to production departments. It is different from the other reallocation methods because it completely disregards any services provided by one service department to another. This means that no portion of the overhead of a service department is reallocated to other service departments. All is reallocated to production departments in the ratio of their specified percentages.
Thus the personnel costs allocated to assembly using the direct method is $3,600.00. ($9,000.00 * 1000/2500)
Production Departments Service Departments Particulars Assembly Department Packaging Department Maintenance Departments Personnel Departments No of Personnel 1000 1500 100 80 Cost for the period $20,000.00 $9,000.00 Personnel Cost Allocation $3600 $5400 ($9000.00) Maintenance Cost Allocation $8000 $12000 ($20000.00) Total $11600 $17400 0 0