San Rafeal Company has two production departments, assembly and finishing, and two service department, machine setup and inspection. Machine setup costs are allocated on the basis of number of setups, while inspection costs are allocated on the basis of number of direct labor hours. Selected information on the four departments follows:
1. How do I use the direct method, to determine the amount of machine setup costs allocated to the two production departments?
2. Using the direct method, determine the amount of inspection costs allocated to the two production departments.
Item Direct costs #0f Setups Direct Labor hours
Machine setup $40,000 0 0
Inspection $15,000 0 0
Assembly $25,000 300 200
Finishing $20,000 100 500