Chapter 18, Problem 63P

Lavender Manufacturing Company began business in the current year. The company uses the simplified method to allocate mixed services costs to production. The company’s costs and expenses for the year were as follows.

1. a. Determine Lavender’s total production costs for the year.
2. b. Assume that the hourly pay for direct labor is much lower than the hourly pay for employees in general administration and that the employee turnover is much higher for production employees than for general administration employees. How should these facts affect the company’s decision to use the simplified mixed services method to allocate mixed services costs to production?