Direct method and sequential method of distributing service department costs
A manufacturing company has two service and two production departments. Building Maintenance and Factory Office are the service departments. The production departments are Assembly and Machining. The following data have been estimated for next year’s operations:
Â
Direct labor hours:
Assembly, 80,000; Machining, 40,000
Floor space occupied:
Factory Office, 10%; Assembly, 40%; Machining, 50%
The direct charges identified with each of the departments are as follows:
Building maintenance
$90,000
Factory office
$171,000
Assembly
378,000
Machining
328,000
The building maintenance department services all departments of the company, and its costs are allocated using floor space occupied, while factory office costs are allocable to Assembly and Machining on the basis of direct labor hours.
1. Distribute the service department costs, using the direct method.
2. Distribute the service department costs, using the sequential distribution method, with the department servicing the greatest number of other departments distributed first.
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