alue 3.07 points Problem 11-48 Step Method with Three Service Depagrtments (LO 1

Question

alue 3.07 points Problem 11-48 Step Method with Three Service Depagrtments (LO 11-3) Model, Inc., produces model automobiles made from metal. It operates two production departments, Molding and Painting, and has three service departments, Administration, Accounting, and Maintenance. The accumulated costs in the three service departments were $259,000, $407,000, and $199,000, respectively. Management is concerned that the costs of its service departments are getting too high. In particular, managers would like to keep the costs of service departments under $3.50 per unit on average. You have been asked to allocate service department costs to the two production departments and compute the unit costs The company decided that Administration costs should be allocated on the basis of square footage used by each production and service department. Accounting costs are allocated on the basis of number of employees. Maintenance costs are allocated on the basis of the dollar value of the equipment in each department. The use of each base by all departments during the current period follows Used b Allocation Base Building area Employees Equipment value (in thousands) Accounting Maintenance Molding 409,600 92 $ 18.50 120.00 Painting 76,800 69 60.00 Administration 13,000 70,400 10 $240.00 83,200 46 23 $180.00 Direct costs of the Molding Department included $245,000 in direct materials, $342,500 in direct labor, and $105,000 in overhead. The Painting Department's direct costs consisted of $214,000 in direct materials, $226,000 in direct labor, and $67,500 in overhead

Explanation / Answer

Req a: COST ALOCATION UNDER STEP METHOD Maintenance Accounting Admin Molding Painting Direct cost 199000 407000 259000 692500 507500 From Maintenance -199000 59700 79,600 39800 19900 Aaccounting -466700 58337 233350 175013 Admin -396937 334263 62674 Totals 0 0 0 1299913 765087 Req b: Unit cost Molding Painting Total Total cost 1299913 765087 2065000 Number of units 100000 100000 100000 Cost per unit 12.99913 7.65087 20.65 Molding 13 Painting 7.65 Total 20.65 Req C: Service cost per unit Molding Painting Total Total cost 1299913 765087 2065000 Less: Direct cost 692500 507500 1200000 Service cost allocated 607413 257587 865000 Divide number of units 100000 100000 100000 Service cost per unit 6.07 2.58 8.65 Req 2: No, the company does not meet the stadard of keepeing the service cost to $ 3.50 Req 3: Yes, the company manage to keep the syandard of keeping the service cost below $3.50 in painting

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