Arbon Company has three service departments and two operating departments. Selec

Question

Arbon Company has three service departments and two operating departments. Selected data concerning the five departments are presented below:

Arbon Company has three service departments and two operating departments. Selected data concerning the five departments are presented below Service Departments Operating Departments Equipment Administrative Janitorial Maintenance Prep Total Finishing 300 9,000 37,000 Costs Number of employees Square metres of space $ 108,000 70 $75,800 $46,000 $280,100 $506,600 $1,016,500 600 3,000 13,000 50 250 1,270 14,700 50,000 300 1,300 1,100 occupied Machine-hours The company allocates service department costs by the step-down method in the following order: Administrative (number of employees), Janitorial (space occupied), and Equipment Maintenance (machine hours) Required Assuming that the company uses the direct method rather than the step-down method to allocate service department costs, how much overhead cost would be assigned to each operating department? (Negative amounts should be indicated by a minus sign.) Service Departments tive Janitorial Maintenance Operating Departments Equipment Prep Finishing Total Departmental costs before allocations Allocation:s : Administrative Janitorial Equipment maintenance Total costs after allocation

Explanation / Answer

If the company uses the direct method rather than the step-down method to allocate service department cost :--

Percentage of apportionment of service department cost for direct allocation :

Direct Allocation percentage Particular Adminstrative Janitorial Equipment maintenance Prep Finishing Total Number of Employees 70 50 250 600 300 1270 Allocation % for Adminstration 5.5% 3.9% 19.69% 47.25% 23.62% Square metre of space 300 1300 1100 3000 9000 14700 Allocation % for Janitorial 2.04% 8.84% 7.48% 20.41% 61.23% Machine hours 13000 37000 50000 Allocation % for Equipment maintenance 26% 74%

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