A business uses the step method to allocate service department costs to the producing departments

Accounting Dec 11, 2020

A business uses the step method to allocate service department costs to the producing departments. Assume there are two service departments and two producing departments, as shown below:

Service Departments Producing Departments

Maintenance HR Services Cutting Assembly

Costs $60,000 $100,000 $261,000 $689,000

Machine hours 25,000 6,000 30,000 20,000

# of employees 40 10 440 320

Maintenance services costs are allocated based on machine hours usage, and HR services costs are allocated based on the number of employees. The total costs of the assembly department (rounded to the closest $000), after allocating all the service department costs, starting with the largest service provider (ie., HR services) is:

Expert Solution

Workings:

Proportion of Machine Hours:

6,000+30,000+20,000 = 56,000

For HR Services = 6,000/56,000

For Cutting = 30,000/56,000

For Assembly = 20,000/56,000

Proportion of Number of Employees:

440 + 320 = 760

For Cutting = 440/760

For Assembly = 320/760

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