Question

The Ferre Publishing Company has three service departments and two operating departments. Selected data from a recent period on the five departments follow: Service Departments Operating Departments Total Administration Janitorial Maintenance Binding Printing Costs $ 168,000 $ 126,000 $ 57,600 $ 330,000 $ 516,000 $ 1,197,600 Number of employees 60 35 140 315 210 760 Square feet of space occupied 15,000 10,000 20,000 40,000 100,000 185,000 Hours of press time 30,000 60,000 90,000 Exercise 4B-4 (Algo) Direct Method [LO4-10] Administration is allocated based on number of employees; Janitorial based on space occupied; and Maintenance based on hours of press time. Required: Assuming that the company uses the direct method to allocate service department costs, how much cost would be assigned to each operating department? (Please enter allocations from a department as negative and allocations to a department as positive. The line should add across to zero. Do not round intermediate calculations.)

Answer 1

To allocate costs to the operating departments using the direct method, we calculate allocation bases for Administration, Janitorial, and Maintenance based on number of employees, space occupied, and press time, respectively. We then distribute the corresponding costs of each service department to the Binding and Printing departments according to their share of the allocation base.

Step-by-step explanation:

Allocating Service Department Costs Using the Direct Method

To allocate the costs to each operating department using the direct method, we will follow these steps:

1. Calculate the allocation bases for the Administration, Janitorial, and Maintenance departments based on their respective criteria - number of employees, space occupied, and hours of press time.
2. Allocate each service department's costs to the operating departments based on the calculated allocation bases.
3. Ensure that the total allocated costs from each service department equal the total costs of that service department.

For Administration, with a total cost of $168,000, we allocate based on the number of employees. Binding has 315 employees, and Printing has 210, totaling 525 employees. Therefore, the cost allocated to Binding is (315/525) * $168,000, and to Printing is (210/525) * $168,000.

Janitorial costs, amounting to $126,000, are allocated based on square footage. Binding occupies 40,000 square feet, and Printing 100,000 square feet, totaling 140,000 square feet. The cost allocated to Binding is (40,000/140,000) * $126,000, and to Printing is (100,000/140,000) * $126,000.

For the Maintenance department, with costs of $57,600, allocation is based on press time hours. Since we have 90,000 hours in total, with Binding using 30,000 hours and Printing 60,000 hours, the allocation to Binding is (30,000/90,000) * $57,600, and to Printing is (60,000/90,000) * $57,600.

The allocations across each row should sum to zero, indicating the proper distribution of each service department's costs to the operating departments.