Krum Lawn Equipment has five departments, of which Casting and Finishing are pro
ID: 2414287 • Letter: K
Question
Krum Lawn Equipment has five departments, of which Casting and Finishing are producing departments. Maintenance, Product Movement, and Inspection are service departments. The distribution of the service departments is as follows:
Service Departments & Their Total Costs
Percent of Services Provided To
Maintenance
Product Movement
Inspection
Casting
Finishing
Maintenance
$84,000
0%
5%
25%
50%
20%
Product Movement
$160,000
0%
10%
5%
45%
40%
Inspection
$38,000
0%
15%
5%
20%
60%
Required:
Use the direct method to allocate the service departments’ costs. Prepare a schedule showing the total costs allocated to each department.
2) Broadway Department Store allocates the personnel and payroll department costs to the sales departments of Shoes, Automotive, and Clothing. Human resources (personnel) and payroll also provide services to each other. Personnel costs are allocated by number of employees and payroll costs are allocated by gross payroll. Costs and other information for January were as follows:
Personnel
Payroll
Shoes
Automotive
Clothing
Current Costs
$ 13,800
$ 6,400
$ 24,400
$ 40,000
$ 31,500
Gross Payroll
$ 3,000
$ 1,500
$ 5,600
$ 8,700
$ 4,050
Number of Employees
5
3
8
15
4
Required:
Prepare a schedule that includes the total cost of operating the sales departments for January. Allocate service costs using the step-down method with the sequence of allocation based on highest percentage support concept.
Service Departments & Their Total Costs
Percent of Services Provided To
Maintenance
Product Movement
Inspection
Casting
Finishing
Maintenance
$84,000
0%
5%
25%
50%
20%
Product Movement
$160,000
0%
10%
5%
45%
40%
Inspection
$38,000
0%
15%
5%
20%
60%
Explanation / Answer
Solution 1:
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From Service Department Cost Allocation - Direct Method Service Department Production Department Maintenance Product Movement Inspection Casting Finishing Service department charges $84,000 $160,000 $38,000 Maintenance (50:20) -$84,000 $60,000 $24,000 Product Movement (45:40) -$160,000 $84,706 $75,294 Inspection (20:60) -$38,000 $9,500 $28,500 Total $0 $0 $0 $154,206 $127,794Related Questions
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