
Concept explainers
1.
Allocate the company’s service department costs using the direct method combined with dual allocation.
1.

Explanation of Solution
Service department: A service department is a division in an organization which is not involved directly in producing the goods or services of an organization. But, the service department also offers a service that aids the organization to take place the goods or services that are produced.
Allocate the company’s service department costs using the direct method combined with dual allocation as follows:
Variable costs:
Provider of Service | Cost to be allocated (a) | Production Departments | |||
Machining | Assembly | ||||
Proportion (b) | Amount ($) | Proportion (c) | Amount | ||
Human resource | $50,000 | $22,222 | $27,778 | ||
Maintenance | 80,000 | 37,333 | 42,667 | ||
Computer aided design | 50,000 | 37,500 | 12,500 | ||
Total | $180,000 | $97,055 | $82,945 | ||
Grand total | $830,000 |
Table (1)
Note:
The proportions are based on short-run usage.
Fixed costs:
Provider of Service | Cost to be allocated (a) | Production Departments | |||
Machining | Assembly | ||||
Proportion (b) | Amount ($) | Proportion (c) | Amount | ||
Human resource | $200,000 | $82,353 | $117,647 | ||
Maintenance | 150,000 | 100,000 | 50,000 | ||
Computer aided design | 300,000 | 240,000 | 60,000 | ||
Total | $650,000 | $422,353 | $227,647 | ||
Grand total | $650,000 |
Table (2)
Note:
The proportions are based on long-run usage.
Total cost allocated:
Particulars | Machining | Assembly |
Variable costs | $ 97,055 | $ 82,945 |
Fixed costs | 422,353 | 227,647 |
Total costs | $519,408 | $310,592 |
Grand total | 830,000 |
Table (3)
2.
Allocate the company’s service department costs using the step-down method combined with dual allocation.
2.

Explanation of Solution
Allocate the company’s service department costs using the step-down method combined with dual allocation:
Variable costs:
Table (4)
Fixed costs:
Table (5)
Total cost allocated:
Particulars | Machining | Assembly |
Variable costs | $ 99,336 | $80,664 |
Fixed costs | 434,800 | 215,200 |
Total costs | $534,136 | $295,864 |
Grand total | 830,000 |
Table (6)
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