Lavender Manufacturing Company began business in the current year. The company uses the simplified method to allocate mixed services costs to production. The company's costs and expenses for the year were as follows.
Direct labor $3,000,000
Direct materials 4,000,000
Factory supervision 800,000
Property tax on factory 100,000
Personnel department 400,000
Computer operations 250,000
General administration 550,000
Marketing 800,000
State income tax 200,000
Total $10,100,000
Required:
a. Determine Lavender's total production costs for the year.
b. Assume that the hourly pay for direct labor is much lower than the hourly pay for employees in the general administration and that the employee turnover is much higher for production employees than for the general administration employees. How should these facts affect the company's decision to use the simplified mixed services method to allocate mixed services costs to production?