Problem:
Arbon Company has three service departments and 2 operating departments. Selected data on the 3 departments are presented below:
|
|
Service Department
|
Operating Department
|
|
|
|
|
Equipment
|
|
|
|
|
|
Administrative
|
Janitorial
|
Maintained
|
Prep
|
Finishing
|
Total
|
|
Overhead costs
|
$84,000
|
$67,800
|
$36,000
|
$256,100
|
$498,600
|
$942,500
|
|
Number of employees
|
80
|
60
|
240
|
600
|
600
|
1280
|
|
Square feet of space occupied
|
3000
|
12000
|
10000
|
20000
|
70000
|
11500
|
|
Machine- hours
|
---
|
---
|
---
|
10000
|
30000
|
40000
|
The company allocates service department costs by the step method in the following order: Administrative (number of employees), Janitorial (space occupied), and Equipment Maintenance (machine-hours). The company makes no distinction between fixed and variable service department costs.
Required:
1. Using the step method, allocate the service department costs to the operating department.
2. Assume that the company allocates service department costs by the direct method, rather than by the step method. Assuming that the company uses the direct method, how much overhead costs would be assigned to each operating department?