Part 1: Allocate the costs of the 3 service departments using the direct method.Part 2: Allocate the costs of the 3 service departments using the step method, with the order determined by the greater percentage usage.Part 3: Allocate the costs of the 3 service departments using the reciprical method. Part 4:What is one strength and one drawback of each of the methods? ## Allocation of Service Department Costs in Alltech Manufacturing### OverviewAlltech manufacturing comprises three production departments:- **Networks**- **Terminals**- **Marketing**These departments are allocated costs from three service departments:- **Engineering**- **Maintenance**- **Factory Supervision**Each service department allocates its costs based on specific criteria related to the production departments.### Engineering AllocationEngineering costs ($45,000) are allocated based on the usage of engineering hours across the production departments.#### Engineering Hours Usage| User Department | Engineering Hours | Percentage of Total ||-----------------|-------------------|---------------------|| Networks | 14,000 | 0.20 || Terminals | 56,000 | 0.80 || Marketing | 0 | 0 || Engineering | 0 | 0 || Maintenance | 0 | 0 || Factory Supervision | 0 | 0 || **Totals** | **70,000** | **1.0** |### Maintenance AllocationMaintenance costs ($64,000) are distributed based on the square footage occupied by each department.#### Square Footage Distribution| User Department | Square Footage | Percentage of Total ||--------------------|----------------|---------------------|| Networks | 80,000 | 0.32 || Terminals | 60,000 | 0.24 || Marketing | 60,000 | 0.24 || Engineering | 20,000 | 0.08 || Factory Supervision| 30,000 | 0.12 || **Totals** | **250,000** | **1.00** |### Factory Supervision AllocationFactory Supervision costs ($35,000) are based on payroll dollars within the production departments.#### Payroll Distribution| User Department | Payroll Dollars | Percentage of Total ||--------------------|-----------------|---------------------|| Networks | $360,000 | 0.45 || Terminals | $240,000 | 0.30 || Marketing | $0 | 0 || Engineering | $120,000 | 0.15 || Maintenance | $80,000

Calculation of service department allocation rates: = Service Department Cost / TOTAL Cost Driver…

he Factory Supervision team's costs of $35,000 are allocated based on the payroll dollars in the other These departments receive the allocation of all three of Alltech's service departments; Engineering, allocation process nor the basis for any of the service department allo Maintenance, and Factory Supervision. Engineering allocates its $45,000 of costs based on engineering lepartments. The table below provides he payroll amounts for the most recent production cycle. The direct costs for the production departments are not given here, as they are neither part of the hours in each of the other departments. The Engineering hours table below gives the usage Engineering hours in the latest production cycle. User Department Engineering Hours Percentage of Total .20 Networks 14,000 56,000 Terminals .80 Marketing Engineering 0. Maintenance 0. Factory Supervision 0. Totals 70,000 1.0 The Maintenance Department costs of $64,000 are allocated based on the square footage in each of the ther departments. The table below gives these square footages. Self-service is ignored in the table. Square Footage 80,000 Iser Department Percentage of Total .32 etworks 60,000 .24 erminals 60,000 20,000 .24 Marketing ngineering actory Supervision Totals .08 30,000 .12 250,000 1.00 Again, self-service is ignored. Payroll Dollars $360,000 $240,000 $0 $120,000 $80,000 $800,000 User Department Percentage of Total Networks .45 Terminals .30 Marketing Engineering Maintenance 01 .15 .10 Totals 1.0

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q