Logan Products has two production departments-assembly and finishing. These are supported by two service departments- sourcing (purchasing and handling of materials and human resources) and operations (work scheduling, supervision, and inspection). Logan has the following labor hours devoted by each of the service departments to the other departments. Departments Sourcing Operations. Assembly Finishing Total Total Labor Hours Used by Departments Assembly 40,000 60,000 Sourcing 10,000 Sourcing Operations The costs incurred in the plant are as follows: Departmental Costs Operations 20,000 a. Direct Method Assembly Finishing b. Step Method Assembly Finishing c. Reciprocal Method Assembly Finishing $ 171,000 215,000 414,000 259,000 $1,059,000 Required: 1. What are the costs allocated to the two production departments using (a) the direct method, (b) the step method, when the sourcing department that provides the greatest percentage of services to other service departments goes first, and (c) the reciprocal method? 2. What are the total costs in the production departments after allocation? (For all requirements, do not round intermediate calculations. Round your final answers to nearest whole dollar amount.) Finishing 60,000. 50,000 Total Service Department Cost Allocated Total Production Cost
Logan Products has two production departments-assembly and finishing. These are supported by two service departments- sourcing (purchasing and handling of materials and human resources) and operations (work scheduling, supervision, and inspection). Logan has the following labor hours devoted by each of the service departments to the other departments. Departments Sourcing Operations. Assembly Finishing Total Total Labor Hours Used by Departments Assembly 40,000 60,000 Sourcing 10,000 Sourcing Operations The costs incurred in the plant are as follows: Departmental Costs Operations 20,000 a. Direct Method Assembly Finishing b. Step Method Assembly Finishing c. Reciprocal Method Assembly Finishing $ 171,000 215,000 414,000 259,000 $1,059,000 Required: 1. What are the costs allocated to the two production departments using (a) the direct method, (b) the step method, when the sourcing department that provides the greatest percentage of services to other service departments goes first, and (c) the reciprocal method? 2. What are the total costs in the production departments after allocation? (For all requirements, do not round intermediate calculations. Round your final answers to nearest whole dollar amount.) Finishing 60,000. 50,000 Total Service Department Cost Allocated Total Production Cost
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Logan Products has two production departments-assembly and finishing. These are supported by two service departments-
sourcing (purchasing and handling of materials and human resources) and operations (work scheduling, supervision, and
inspection). Logan has the following labor hours devoted by each of the service departments to the other departments.
Departments
Sourcing
Operations
Assembly
Finishing
Total
Total Labor Hours Used by Departments
Assembly
40,000
60,000
Sourcing
Operations
The costs incurred in the plant are as follows:
Departmental
Costs
Sourcing
10,000
a. Direct Method
Assembly
Finishing
b. Step Method
Assembly
Finishing
c. Reciprocal Method
Assembly
Finishing
Operations
20,000
$ 171,000
215,000
414,000
259,000
$ 1,059,000
Required:
1. What are the costs allocated to the two production departments using (a) the direct method, (b) the step method, when the
sourcing department that provides the greatest percentage of services to other service departments goes first, and (c) the
reciprocal method?
2. What are the total costs in the production departments after allocation?
(For all requirements, do not round intermediate calculations. Round your final answers to nearest whole dollar amount.)
Total Service
Department Cost
Allocated
Saved
Finishing
60,000.
50,000
Total Production
Cost
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Step 1: Define Cost Allocation
VIEWStep 2: Computation of cost allocation to 2 production departments using Direct method
VIEWStep 3: Computation of cost allocation using Step Method
VIEWStep 4: Computation of cost allocation using Reciprocal Method
VIEWStep 5: Calculation of total costs in production department after allocation
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