Elm Co has two service departments serving two production departments. Overhead costs apportioned toeach department are as follows.Production 1Production 2Service 1Service 297,42884,9479,38415,823Service 1 department is expected to work a total of 40,000 hours for the other departments, divided asfollows.HoursProduction 1Production 2Service 220,00015,0005,000Service 2 department is expected to work a total of 12,000 hours for the other departments, divided asfollows.Production 1Production 2Service 1Hours3,0008,0001,000RequiredThe finance director has asked you to reapportion the costs of the two service departments using thedirect method of apportionment.When you show the finance director how you have reapportioned the costs of the two service departments,they say 'Did I say that we used the direct method? Well, I meant to say the step down method.RequiredProve to the finance director that you know how to use the step down method. (Note. Apportion theoverheads of Service 1 department first.)

In direct method the cost of service departments are not charged to…

Business

Accounting

as

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter7: Allocating Costs Of Support Departments And Joint Products

Section: Chapter Questions

Problem 28E: Minor Co. has a job order cost system and applies overhead based on departmental rates. Service...

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