Asked by Canon Graef on May 10, 2024
Verified
Alpha Manufacturing Corporation has two service departments, Custodial Services and Maintenance, and three production departments, Cutting, Milling, and Assembly. The company allocates the cost of Custodial Services on the basis of square footage and Maintenance on the basis of labor-hours. No distinction is made between variable and fixed costs. Budgeted operating data for the year just completed follow:
Required: a. Prepare a schedule to allocate service department costs to the production departments by the direct method.
b. Prepare a schedule to allocate service department costs to the production departments by the step-down method, allocating Custodial Services first.
Direct Method
A cash flow statement preparation method that lists major categories of gross cash receipts and payments, directly showing sources and uses of cash.
Step-Down Method
An allocation method used in cost accounting to allocate service department costs to production departments in a sequential manner based on certain criteria.
Custodial Services
Services provided by companies or individuals focusing on the cleaning and maintenance of buildings or properties.
- Understand the concept of service department cost allocation.
- Prepare schedules for allocating service department costs to production/operating departments using the direct method.
Verified Answer
Allocation base for Maintenance costs = 4,000 + 8,000 + 8,000 = 20,000
b. Step MethodAllocation base for Custodial Services costs = 20,000 + 10,000 + 44,000 + 26,000 = 100,000
Allocation base for Maintenance costs = 4,000 + 8,000 + 8,000 = 20,000
Learning Objectives
- Understand the concept of service department cost allocation.
- Prepare schedules for allocating service department costs to production/operating departments using the direct method.
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