Question

Christmas Timber, Inc., produces Christmas trees. The trees are produced through a cutting and pruning process. Machine maintenance and janitorial labors are performed throughout the production process by nonproduction employees. Maintenance and janitorial costs are allocated based on machine hours used and the number of trees in each department, respectively. The company estimates that the cutting and pruning areas typically have about 6 and 54 trees, respectively, in them at 1 time. The company also estimates that the cutting process requires about 9 times as many machine hours as the pruning process. The total costs of each department are as follows:

Maintenance Department $7,800
Janitorial Department 5,000
Cutting Department 54,500
Pruning Department 11,000

Using the direct method of support department cost allocation, determine the total cost of each production department after allocating all support costs to the production departments.

Answer 1

Cutting = $62,020

Pruning = $16,280

Step-by-step explanation:

The direct method does not consider the impact of reciprocal servicing arrangement when allocating the overhead of service centers and only allocates overhead to the production cost centers only.

Allocation of Overhead

Janitorial overhead

Cutting = 6/(6+54)× $5,000 = $500

Pruning =54/(6+54) × $5,000= $4,500

Maintenance overhead

Cutting = 9/(9+1)× $7,800 = $7020

Pruning =1/(9+1) × $7,800= $780

Total cost of production department

Cutting = 54,500 + 500 + 7020= 62,020

Pruning department = 11,000 + 4,500 + 780 = 16,280

Cutting = $62,020

Pruning = $16,280