Cedar Hill Manufacturing produces wooden outdoor furniture. Cedar Hill uses the

Question

Cedar Hill Manufacturing produces wooden outdoor furniture. Cedar Hill uses the step-down method to allocate service department costs to the production departments There are two service departments: administration and custodial services, and two production departments: cutting and assembly. Allocates administration costs first followed by custodial services costs. Administration costs are allocated based on labour hours, and custodial services costs are allocated based on space occupied Production Departments Administration Custodial Services Direct costs Labour hours Space occupied (m2) # units produced $173,100 12,000 5,200 Cutting Assembly $108,400 $325,100 $705,900 51,900 31,090 89,500 11,300 5,200 26,300 19,490 53,600 Allocate the administration costs to the production departments. (Round answers to 2 decimal places, e.g. 15.25. Do not round intermediate calculations.) Production Departments Custodial Services Cutting Assembly Allocation of administration cost

Explanation / Answer

Administration costs are allocated based on labour hours.

Allocation of administration costs to production departments:

Allocation rate based on labour hours: 173100 / (26300 + 51900) = 173100 / 78200 = 2.2135

Allocation to cutting department = 26300 x 2.2135 = $58216.50

Allocation to Assembly department = 51900 x 2.2135 = $114883.50

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