Question 4: Service department costallocation
Inns Battery Company has two service departments: Maintenanceand Personnel. Maintenance Department costs are allocated on thebasis of budgeted maintenance-hours. Personnel Department costs areallocated based on the number of employees. Data on budgetedmaintenance-hours and number of employees are as follows:
Support Departments
Production Departments
Maintenance Department
Personnel Department
A
B
Budgeted costs
$180,000
$30,000
$80,000
$120,000
Budgeted maintenance-hours
n/a
240
720
240
Number of employees
20
n/a
60
120
Required:
4a. Using the direct method, determine the amount of supportdepartment costs to be allocated to Production Department A.
4b. Using the step-down method, determine the amount ofMaintenance Department costs to be allocated to ProductionDepartment A, if the service department with the highest percentageof interdepartmental support service is allocated first.
4c. Using the reciprocal method, determine the amount ofmaintenance department costs to be allocated to ProductionDepartment A (round up to nearest dollar).
4d. List and explain two possible reasons why a manager mightprefer that budgeted rather than actual cost-allocation rates beused when cost is being allocated to his/her department fromanother department. Use the textbook and/or other relevantresources to support your answer.
Question 4: Service department costallocation
Inns Battery Company has two service departments: Maintenanceand Personnel. Maintenance Department costs are allocated on thebasis of budgeted maintenance-hours. Personnel Department costs areallocated based on the number of employees. Data on budgetedmaintenance-hours and number of employees are as follows:
Support Departments | Production Departments | |||
Maintenance Department | Personnel Department | A | B | |
Budgeted costs | $180,000 | $30,000 | $80,000 | $120,000 |
Budgeted maintenance-hours | n/a | 240 | 720 | 240 |
Number of employees | 20 | n/a | 60 | 120 |
Required:
4a. Using the direct method, determine the amount of supportdepartment costs to be allocated to Production Department A.
4b. Using the step-down method, determine the amount ofMaintenance Department costs to be allocated to ProductionDepartment A, if the service department with the highest percentageof interdepartmental support service is allocated first.
4c. Using the reciprocal method, determine the amount ofmaintenance department costs to be allocated to ProductionDepartment A (round up to nearest dollar).
4d. List and explain two possible reasons why a manager mightprefer that budgeted rather than actual cost-allocation rates beused when cost is being allocated to his/her department fromanother department. Use the textbook and/or other relevantresources to support your answer.
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Related questions
University Printers has two servicedepartments (Maintenance and Personnel) and two operatingdepartments (Printing and Developing). Management has decided toallocate maintenance costs on the basis of machine-hours in eachdepartment and personnel costs on the basis of labor-hours workedby the employees in each. |
The following data appear in thecompany records for the current period: |
Maintenance | Personnel | Printing | Developing | |||||||||||||
Machine-hours | ? | 624 | 912 | 3,264 | ||||||||||||
Labor-hours | 208 | ? | 240 | 1,152 | ||||||||||||
Department directcosts | $ | 11,000 | $ | 22,000 | $ | 34,000 | $ | 19,000 | ||||||||
Required: |
Allocate the service departmentcosts using the reciprocal method. (Matrix algebra is not requiredbecause there are only two service departments.) (Note: Due torounding, the costs allocated to the various departments may notadd up to the total service department costs being allocated.)(Do not round intermediatecalculations. Round final answers to the nearestdollar amount. Leave no cells blank - be certain to enter "0"wherever required. Amounts to be deducted should be indicated witha minus sign. Omit the "$" sign in your response.) |
Cost Allocation To: | ||||
From: | Maintenance | Personnel | Printing | Developing |
Service departmentcosts | $ | $ | $ | $ |
Maintenance | ||||
Personnel | ||||
Total | $ | $ | $ | $ |