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Refer to the facts in Exercise 11-22. Assume that both Building A and Building B work on just two jobs
during the month of June: RW-12 and RW-13. Costs are allocated to jobs based on labor-hours in
Building A and machine-hours in Building B. The number of labor- and machine-hours worked in each
department are as follows:
Job RW-12:
Job RW-13
Required
How much of the service department costs allocated to Building A and Building B in the direct
method should be allocated to Job RW-12? How much should be allocated to Job RW-13?
Exercise 11-22 Cost Allocation: Direct Method
Warren Ltd. has two production departments, Building A and Building B, and two service
departments, Maintenance and Cafeteria. Direct costs for each department and the proportion of
service costs used by the various departments for the month of June follow:
Proportion of Services Used by
Department
Building A
Building B
Maintenance
Cafeteria
Required
Compute the allocation of service department costs to producing departments using the direct
method.
Building A Building B
Labor-hours 160 20
Machine-hours 20 40
Labor-hours 20 20
Machine-hours 20 180
Answer to 11-22
Building A Building B
Maintenance $ 250,000 $ 150,000
0.5/(0.5 add 0.3) * $ 400,000 0.3/(0.5 add 0.3) * $ 400,000
Cafeteria $ 160,000 $ 160,000
0.1/(0.1 add 0.1) * $ 320,000 0.1/(0.1 add 0.1) * $ 320,000
Total $ 410,000 $ 310,000
Building A Building B
Job RW 12 labor hours 160 -
Job RW 12 machine hours - 40
Job RW 13 labor hours 20 -
Job RW 13 machine hours - 180
180 220
Assignment of costs
Job RW 12 Building A $ 364,444
Building B $ 56,364
Total $ 420,808
0.3
0.1
(160 labor hours * $ 2,277.78 per labor hour)
(40 machine hours * $ 1,409.09 per machine hour)