Service Department Cost Allocation Kellogg Printing has two service departments

Question

Service Department Cost Allocation Kellogg Printing 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 department. The following data appear in the company records for the current period. Maintenance Personnel Printing Developing Machine HourS Labor Hours Department Direct Costs 1.000 1.000 500 3,000 2.000 $5,000 $12,000 Required: 1. Using the direct method to allocate these service department costs, the total costs allocated to the Printing departments is $and to Developing is 1. Using the step method to allocate these service department costs (start with the Maintenance Department), the total costs allocated to the Pringing department is $ and to Developing is $

Explanation / Answer

1 Direct Method Maintenance Personnel Printing Developing Service department costs 5000 12000 Maintenance allocation -5000 1250 3750 1000/(1000+3000) 3000/(1000+3000) Personnel allocation -12000 2400 9600 500/2500*12000 2000/2500*12000 Total costs allocated 0 0 3650 13350 2 Step Method Maintenance Personnel Printing Developing Service department costs 5000 12000 0 0 Maintenance allocation -5000 1000 1000 3000 1000/(1000+1000+3000)*5000 1000/(1000+1000+3000)*5000 1000/(1000+1000+3000)*5000 Personnel 0 -13000 2600 10400 500/2500*13000 2000/2500*13000 Total costs allocated 0 0 3600 13400 Ans Printing Developing Direct Method 3650 13350 Step Method 3600 13400

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