University Printers has two service departments (Maintenance and Personnel) and

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:

Use the direct method to allocate these service department costs to the operating departments

Maintenance Personnel Printing Developing   Machine-hours — 2,000 2,000 4,400   Labor-hours 850 — 850 3,400   Department direct costs $ 28,000 $ 50,000 $ 59,000 $ 44,000

Use the direct method to allocate these service department costs to the operating departments

Explanation / Answer

Solution.

Allocation of service department costs to the operating departments Use the direct method.

Description Service Department Opereting Department Total Maintenance Personnel Printing Developing Department direct costs      28,000.00      50,000.00      59,000.00      44,000.00    181,000.00 Maintenance    (28,000.00)         8,750.00      19,250.00 Personnel    (50,000.00)      10,000.00      40,000.00 Total                      -                        -        77,750.00    103,250.00    181,000.00

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