Using Direct Method and Step Method for Distributing Services Department Cost to Production Department -...
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Accounting
Using Direct Method and Step Method for Distributing Services Department Cost to Production Department -
A manufacturing company has two services departments and two production departments. Building Maintenances and Factory Services are the services departments. The production
department are Assembly and Machining. The following data have been estimated for next year's operations:
Direct Labors
Assembly 80,000 Machining 100,000
Floor space occupied
Assembly 40% Machining 35% Factory Services 25%
The direct charges identified with each of the departments are as follows:
Building Maintenance
$190,000
Factory Services
$180,000
Assembly
$400,000
Machining
$429,000
The building maintenance department services all department of the company, and its costs are allocated using floor space occupied, while factory services costs are allocable to Assembly and Machining on the basis of direct labor hours.
Instructions:
Distribute the service departments costs, using the direct method.
Distribute the services departments costs, using the step or sequential distribution method, allocate Building Maintenance costs first.
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