Caro Manufacturing has two production departments, Machining and Assembly, and t

Question

Caro Manufacturing has two production departments, Machining and Assembly, and two service departments, Maintenance and Cafeteria. Direct costs for each department and the proportion of service costs used by the various departments for the month of August follow:

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Compute the allocation of service department costs to producing departments using the direct method. (Do not round intermediate calculations.)

Total Costs

Machining

Assembly

Proportion of Services Used by Department Direct Costs Maintenance Cafeteria Machining Assembly Machining $ 103,000 Assembly 72,400 Maintenance 44,800 — 0.2 0.6 0.2 Cafeteria 36,000 0.6 — 0.2

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Explanation / Answer

Allocation of service department costs to producing departments using the direct method

Maintenance cost = 44,800 divided to

Machining   = 0.60/ (0.60+0.20) * 44,800     = 33,600

Assembly    = 44,800 – 33,600                           = 11,200

Cafeteria cost = 36,000 divided to

Machining   = 0.20/ (0.20+0.20) *36,000 = 18,000

Assembly    = 36000 – 18000                    = 18,000

Therefore,

Machining gets =       33,600 + 18,000   =       51,600

Assembly gets     =       11,200 + 18,000   =       29,200

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