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Homework answers / question archive / CJ’s Motorcycle Store has two service departments: Maintenance and Personnel
CJ’s Motorcycle Store has two service departments: Maintenance and Personnel. The maintenance department’s costs are allocated on the basis of maintenance hours. The personnel department’s costs are allocated based on the number of employees. CJ has two production departments: Assembly and Repairs. The following data is provided to you for review: Support Departments Production Departments Maintenance Personnel Assembly Repairs Budgeted costs
| Support Departments | Support Departments | Production Departments | Production Departments | |
| Maintenance | Personnel | Assembly | Repairs | |
| Budgeted cost | $320,000 | $80,000 | $160,000 | $240,000 |
| Budgeted maintenance hours | 800 | 960 | 640 | |
| Number of employees | 40 | 160 | 480 |
Required:
a) Using the direct method, calculate how much of the maintenance and personnel costs will be allocated to Assembly and Repairs, respectively.
b) Using the step-down method, presuming that Maintenance is allocated first, calculate how much of the maintenance and personnel costs will be allocated to Assembly and Repairs, respectively.
a) Using Direct Method--
In direct method, service departments cost are allocated only to production departments.
Calculation of maintenance department cost allocated to assembly department-
= (Budgeted cost of maintenance department / Total budgeted maintenance hours for production departments ) * Budgeted hours for assembly department.
= (320000 / 960+640) * 960
= 200 * 960
= 192000//
Therefore the maintenance department cost allocated to assembly department is $192000.
Calculation of maintenance cost allocated to repairs department-
= (Budgeted cost of maintenance department / Total budgeted maintenance hours for production departments ) * Budgeted hours for repairs department.
= (320000 / 1600) * 640
= 200 * 640
= 128000//
Therefore the maintenance department cost allocated to repairs department is $128000.
Calculation of personnel department cost allocated to assembly department-
= (Budgeted cost of personnel department / Total budgeted employees for production departments ) * Budgeted employees for assembly department.
= (80000 / 160 + 480) * 160
= 125 * 160
= 20000//
Therefore the personnel department cost allocated to assembly department is $ 20000.
Calculation of personnel department cost allocated to repairs department-
= (Budgeted cost of personnel department / Total budgeted employees for production departments ) * Budgeted employees for repairs department.
= (80000 / 160 + 480) * 480
= 125 * 480
=60000.
Therefore the personal department cost allocated to repairs department is $ 60000.
b) Using step down method-
Here we recognises the services provided by one service department to the other, but after a particular service department cost is allocated, it will not recieve cost from the other service department. In the question it is said that maintenance department cost is allocated first, so the maintenance department will not recieve cost from the personnel department.
Calculation of maintenance department cost allocated to personnel department-
= (Budgeted cost of maintenance department / Total budgeted maintenance hours for all departments ) * Budgeted hours for personnel department.
= ( 320000 / 800+960+640) * 800
= 133.3 * 800
= 106640//
Therefore the maintenance cost allocated to personnel department is $ 106640.
Calculation of maintenace department cost allocated to assembly department-
= (Budgeted cost of maintenance department / Total budgeted maintenance hours for all departments ) * Budgeted hours for assembly department.
= ( 320000 / 800+960+640) * 960
= 133.3 * 960
= 127968//
Therefore the cost of maintenance department cost allocated to assembly department is $ 127968.
Calculation of maintenance department cost allocated to repairs department-
= (Budgeted cost of maintenance department / Total budgeted maintenance hours for all departments ) * Budgeted hours for repairs department.
= ( 320000 / 800+960+640) * 640
= 133.3 * 640
= 85312//
Therefore the cost of maintenance department cost allocated to repairs department is $ 85312.
Calculation of personnel department cost allocated to assembly department-
Here the personnel department recieved $ 106640 from maintenance department as allocated costs. Therefore the total cost that should be allocated to production departments from personnel department is-
=80000 + 106640
= 186640.
= (Total cost of personnel department / Total employees for production departments ) * Budgeted employees for assembly department.
= (186640 / 160+480) * 160
= 291.6 * 160
= 46656//
Therefore the cost of personnel department allocated to assembly department is $112992.
Calculation of personnel department cost allocated to repairs department-
= (Total cost of personnel department / Total budgeted employees for production departments ) * Budgeted employees for repairs department.
= ( 186640 / 160 + 480 ) * 480
= 291.6 * 480
= 139968//
Therefore the total cost of personnel department allocated to repairs department is $139968.
