Warren Ltd. has two production departments. Building A and Building B, and two s

Question

Warren Ltd. has two production departments. Building A and Building B, and two service departments, Maintenance and Cafeteria. Direct costs for each department and the proportion of service costs used by the various departments for the month of June follow: Required: Use the step method to allocate the service costs, using the following: The order of allocation starts with Maintenance. (Do not round intermediate calculations. Round your answers to the nearest dollar amount.) The allocations are made in the reverse order (starting with Cafeteria). (Do not round intermediate calculations. Round your answers to the nearest dollar amount.)

Explanation / Answer

Answer:(a)

Maintenance:

Cafeteria=30%* $218,000=$65400

Building A = 50%* $218,000=109000

Building B = 20%* $218,000=43600

Cafeteria: $217400 = $152,000 direct costs + $65400 from Maintenance

Buiding A = 0.2* $217400/ (0.2 + 0.2)=108700

Buiding B= 0.2 *$217400/ (0.2 + 0.2) =108700

(b)

Cafeteria:

Maintenance = 60%*152,000=91200

Buiding A= 20%* $152,000=30400

Buiding B= 20%*152,000=30400

Maintenance: $309200 = $218,000 direct costs + $91200 from Cafeteria

Building A= 0.5 *$309200/ (0.5 + 0.2) =220857

Building B= 0.2 *$309200/ (0.5 + 0.2) =88343

To From Maintenance Cafeteria Building A Building B Service department costs: Maintenance 65400 109000 43600 Cafeteria 108700 108700 Total costs 0 65400 217700 152300

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