1 answer

Downhill Manufacturing produces snow skis in a two-step production process - cutting and laminating. The manufacturing...

Question:

Downhill Manufacturing produces snow skis in a two-step production process - cutting and laminating.

The manufacturing center is supported by two service centers - a health clinic and a janitorial service. The

following table reveals certain facts about each activity:

Health

Health

Janitorial

Cutting

Laminating

Employees

3

5

12

16

Square footage

           1,400

500

        14,000

         9,000

Cost incurred

$160,000

$150,000

$720,000

      900,000

(a) Using the direct method, allocate the service department costs to production. The clinic costs are

to be allocated based on employees and the janitorial costs are to be allocated based on the square

footage.

(b) Using the step method, allocate the service department costs to production. The clinic costs are to

be allocated based on employees and the janitorial costs are to be allocated based on the square

footage. The first step will be to allocate clinic costs. The clinic employees maintain their space and

do not rely upon the janitorial service. However, janitorial employees occasionally sustain an injury

and utilize the clinic.

A.

5(a) Health clinic

$0

5(a) Janitorial

$0

5(a) Cutting

$879,875.78

5(a) Laminating

$1,050,124.22

5(b) Health clinic

$0

5(b) Janitorial

$0

5(b) Cutting

$884,242.41

5(b) Laminating

$1,045,757.55

B.

5(a) Health clinic

$0

5(a) Janitorial

$0

5(a) Cutting

$174,876.00

5(a) Laminating

$5,013,510

5(b) Health clinic

$0

5(b) Janitorial

$0

5(b) Cutting

$894,242

5(b) Laminating

$1,065,758


Answers

Solution Required 1: Allocation of service department costs to the production department using the direct method Under directRequired 2: Allocation of service department costs to the production department using the step method Step method is a method

.

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