University Printers has two service departments (Maintenance and Personnel) and

Question

University Printers 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.

Allocate the service department costs using the step method, starting with the Maintenance Department.

University Printers 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.

Explanation / Answer

Note:

Maintenance department cost has been allocated in the following ratio:

Personnel: Printing: developing = 1700:1700:5100 =17:17:51= 1:1:3

Personnel department cost has been allocated (after the allocation of the maintenace department cost) in the following ratio:

Printing: developing = 700 : 2800 = 1 : 4

Maintenance Personnel Printing Developing Total Overhead costs prior to allocation $    22,000.00 $   41,000.00 $ 53,000.00 $ 38,000.00 maintenace department cost apportioned $   -22,000.00 $     4,400.00 $   4,400.00 $ 13,200.00 Personnel department cost apportioned $                    -   $ -45,400.00 $   9,080.00 $ 36,320.00 Total overhead cost after reallocation $ 66,480.00 $ 87,520.00 $ 1,54,000.00

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