Question

Required information 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 Administration Janitorial Maintenance Binding Printing Total 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 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

Answer 1

The Ferre Publishing Company

Allocation of Cost to Each Department under the Direct Method;

Service Departments Operating Departments

Admini Janitorial Mainten Binding Printing Total

-stration -ance

Costs $168,000 $126,000 $57,600 $330,000 $516,000 $1,197,600

Admin. (168,000) 100,800 67,200 0

Janitorial (126,000) 36,000 90,000 0

Maintenance (57,600) 19,200 38,400 0

Total assigned cost $486,000 $711,600 $1,197,600

Step-by-step explanation:

a) Data and Calculations:

Service Departments Operating Departments

Admini Janitorial Mainten Binding Printing Total

-stration -ance

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

Allocation basis Allocation Basis Allocation Rate Calculation

Administration Number of employees $320/employee ($168,000/525)

Janitorial Space occupied $0.90/space ($126,000/140,000)

Maintenance Hours of press time $0.64/press time ($57,600/90,000)

The direct method is one of the methods that The Ferre Publishing Company can use to allocate the overhead costs of the three service departments: Administration, Janitorial, and Maintenance to the Operating Departments: Binding and Printing. Others are the Step method and the Reciprocal method. The Step method allocates one service costs to some other service departments one by one. The Reciprocal relies on an elimination formula.