The Merchant Manufacturing Company has two service departments — purchasing and
ID: 2482501 • Letter: T
Question
The Merchant Manufacturing Company has two service departments — purchasing and maintenance, and two production departments — fabrication and assembly. The distribution of each service department's efforts to the other departments is shown below: FROM TO Purchasing Maintenance Fabrication Assembly Purchasing 0% 60% 10% 30% Maintenance 20% 0% 30% 50% The direct operating costs of the departments (including both variable and fixed costs) were as follows: Purchasing $93,800 Maintenance $18,100 Fabrication $71,700 Assembly $47,600 The total cost accumulated in the fabrication department using the step method is (assume the purchasing department goes first): A) $108,973 B) $122,228 C) $129,263 D) $115,600 E) $101,938 The Merchant Manufacturing Company has two service departments — purchasing and maintenance, and two production departments — fabrication and assembly. The distribution of each service department's efforts to the other departments is shown below: FROM TO Purchasing Maintenance Fabrication Assembly Purchasing 0% 60% 10% 30% Maintenance 20% 0% 30% 50% The direct operating costs of the departments (including both variable and fixed costs) were as follows: Purchasing $93,800 Maintenance $18,100 Fabrication $71,700 Assembly $47,600 The total cost accumulated in the fabrication department using the step method is (assume the purchasing department goes first): A) $108,973 B) $122,228 C) $129,263 D) $115,600 E) $101,938Explanation / Answer
Correct Answer is A) $108,973
Here is the calculation and working:
Step Method or Non-Reciprocal Method
The process continues till the cost of last Service Dept is apportioned (allocate/divide up/distribute)
Service Department
Production Department
Purchasing
Maintenance
Fabrication
Assembly
Operating Cost
$93,800
$18,100
$71,700
$47,600
Allocation of Purchasing Department Cost over other department in the ratio 60:10:30
($93,800)
$56,280
$9,380
$28,140
$74,380
Allocation of Maintenance Department Cost over the production department in the ratio 30:50
($74,380)
$27,893
$46,488
$108,973
$122,228
Service Department
Production Department
Purchasing
Maintenance
Fabrication
Assembly
Operating Cost
$93,800
$18,100
$71,700
$47,600
Allocation of Purchasing Department Cost over other department in the ratio 60:10:30
($93,800)
$56,280
$9,380
$28,140
$74,380
Allocation of Maintenance Department Cost over the production department in the ratio 30:50
($74,380)
$27,893
$46,488
$108,973
$122,228