Exercise 11-29 Cost Allocation: Step Method (LO 11-3) Caro Manufacturing has two

Question

Exercise 11-29 Cost Allocation: Step Method (LO 11-3)

Caro Manufacturing has two production departments, Machining and Assembly, 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 August follow:

Required:

Use the step method to allocate the service costs, using the following:

a. The order of allocation starts with Maintenance. (Negative amounts be indicated by a minus sign. Do not round intermediate calculations.)

b. The allocations are made in the reverse order (starting with Cafeteria). (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations.)

Proportion of Services Used by Department Direct Costs Maintenance Cafeteria Machining Assembly Machining $ 110,000 Assembly 75,000 Maintenance 52,000 — 0.3 0.5 0.2 Cafeteria 34,000 0.6 — 0.2 0.2

Explanation / Answer

Use the step method to allocate the service costs, using the following:

a. The order of allocation starts with Maintenance.

Use the step method to allocate the service costs, using the following:

b. The allocations are made in the reverse order (starting with Cafeteria).

To From Maintenance Cafeteria Machining Assembly Service dept Costs 52000 34000 110000 75000 Maintenance -52000 15600 26000 10400 Cafeteria - 49600 24800 24800 Total Cost - - 160800 110200

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