Diff Audio mass produces car audio speakers. They have two production department

Question

Diff Audio mass produces car audio speakers. They have two production departments, Molding and Assembly.  They also have three service departments: Human Resources, Maintenance and Engineering. Usage of the service departments can be found below:

Human Resources

Maintenance

Engineering

Human Resources

--

--

--

Maintenance

6%

--

--

Engineering

4%

10%

--

Molding

35%

42%

70%

Assembly

55%

48%

30%

Budgeted costs in each service department are as follows: Human Resources $190,000; Maintenance $290,000; and Engineering $180,000.  

  

Required:

1.     Use the direct method to allocate service department costs to the production departments

2.     What is the correct departmental sequence to use in allocating costs by the step-down method

3.     Using the sequence identified in part 2, allocate the service department costs by using the step-down method.

  

     

Human Resources

     

Maintenance

     

Engineering

     

Human Resources

     

--

     

--

     

--

     

Maintenance

     

6%

     

--

     

--

     

Engineering

     

4%

     

10%

     

--

     

Molding

     

35%

     

42%

     

70%

     

Assembly

     

55%

     

48%

     

30%

   Diff Audio mass produces car audio speakers. They have two production departments, Molding and Assembly. They also have three service departments: Human Resources, Maintenance and Engineering. Usage of the service departments can be found below:

Explanation / Answer

using direct method

allocating human resource to

molding = 35/(35+55) *190,000 = 73888.89

assembly = 55/(35+55) *190,000 = 116111.11

allocating maintenance to

molding = 42/(42+48 )*290,000 = 135333.33

assembly = 48/(42+48 )*290,000 = 154666.67

allocating enginnering to

molding = 70% of 180,000 = 126,000

assembly = 30% of 180,000 = 54,000

2. for step down

correct sequence will be maintenacne, human resource, enginnering

3. stepping down

allocating mainteinance to

human resource = 0

engineering = 10% of 290,000 = 29,000

molding = 42% of 290,000 = 121800

assembly = 48% of 290,000 = 139200

update costs of mainteinance , which is same 190,000

but engineering = 29,000+180,000 = 209,000

then again allocate human resource to

engineerin, moulding and assembly (but not to maintenance)

after that engineering

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