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University Printers has two service departments (Maintenance and Personnel) and two operating departments (Printing and Developing). Management has decided to allocate maintenance costs on the basis of machine-hours in each department and personnel costs on the basis of labor-hours worked by the employees in each. The following data appear in the company records for the current period: Personnel 1,000 Printing 1,000 500 Maintenance Developing 3,000 2,000 $10,000 Machine-hours Labor-hours 500 Department direct costs $5,000 $12,000 $15,000 Required: Allocate the service department costs using the step method, starting with the Maintenance Department. (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations.) Maintenance Personnel Printing Developing Service department costs Maintenance Personnel Total costs allocated

University Printers has two service departments (Maintenance and Personnel) and two operating departments (Printing and Developing). Management has decided to allocate maintenance costs on the basis of machine-hours in each department and personnel costs on the basis of labor-hours worked by the employees in each. The following data appear in the company records for the current period: Personnel 1,000 Printing 1,000 500 Maintenance Developing 3,000 2,000 $10,000 Machine-hours Labor-hours 500 Department direct costs $5,000 $12,000 $15,000 Required: Allocate the service department costs using the step method, starting with the Maintenance Department. (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations.) Maintenance Personnel Printing Developing Service department costs Maintenance Personnel Total costs allocated

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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**Cost Allocation Using the Step Method: University Printers Case Study** University Printers operates with two service departments (Maintenance and Personnel) and two operating departments (Printing and Developing). The management has chosen to allocate maintenance costs according to machine-hours and personnel costs based on labor-hours utilized by each department. ### Data Summary: For the current period, the company records show: - **Machine-hours:** - Maintenance: – - Personnel: 1,000 - Printing: 1,000 - Developing: 3,000 - **Labor-hours:** - Maintenance: 500 - Personnel: – - Printing: 500 - Developing: 2,000 - **Department Direct Costs:** - Maintenance: $5,000 - Personnel: $12,000 - Printing: $15,000 - Developing: $10,000 ### Requirement: Allocate the service department costs using the step method, beginning with the Maintenance Department. Note that negative amounts should be indicated by a minus sign. Ensure that intermediate calculations are not rounded. ### Allocation Table: A structured table format is prepared, detailing the allocation of service department costs across Maintenance, Personnel, Printing, and Developing. This table will help in capturing the allocated costs and any internal transactions between service departments before the final assignments to the operating departments. ### Analysis of Costs: Careful analysis of the table aids in understanding the redistribution of costs from service departments to operational units. The approach taken here demonstrates how overhead costs are systematically apportioned based on predetermined cost drivers—machine-hours and labor-hours—which influence the financial planning and budgeting of University Printers. By accurately following this procedure, organizations can ensure a fair and equitable distribution of indirect costs, which is essential for comprehensive financial reporting and accountability within multifaceted business structures.
Transcribed Image Text:**Cost Allocation Using the Step Method: University Printers Case Study** University Printers operates with two service departments (Maintenance and Personnel) and two operating departments (Printing and Developing). The management has chosen to allocate maintenance costs according to machine-hours and personnel costs based on labor-hours utilized by each department. ### Data Summary: For the current period, the company records show: - **Machine-hours:** - Maintenance: – - Personnel: 1,000 - Printing: 1,000 - Developing: 3,000 - **Labor-hours:** - Maintenance: 500 - Personnel: – - Printing: 500 - Developing: 2,000 - **Department Direct Costs:** - Maintenance: $5,000 - Personnel: $12,000 - Printing: $15,000 - Developing: $10,000 ### Requirement: Allocate the service department costs using the step method, beginning with the Maintenance Department. Note that negative amounts should be indicated by a minus sign. Ensure that intermediate calculations are not rounded. ### Allocation Table: A structured table format is prepared, detailing the allocation of service department costs across Maintenance, Personnel, Printing, and Developing. This table will help in capturing the allocated costs and any internal transactions between service departments before the final assignments to the operating departments. ### Analysis of Costs: Careful analysis of the table aids in understanding the redistribution of costs from service departments to operational units. The approach taken here demonstrates how overhead costs are systematically apportioned based on predetermined cost drivers—machine-hours and labor-hours—which influence the financial planning and budgeting of University Printers. By accurately following this procedure, organizations can ensure a fair and equitable distribution of indirect costs, which is essential for comprehensive financial reporting and accountability within multifaceted business structures.
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