Manriquez Tool and Die has three service departments:

1. Manriquez allocates all service department costs directly to the production departments without allocation to other service departments. Show how much of the budgeted costs of each service department are allocated to each production department. To plan your work, examine number 2 before undertaking this question.
2. The company has decided to use the step-down method of cost allocation. General factory administration would be allocated first, then cafeteria, then engineering. Cafeteria employees work 36,000 labour hours per year. There were 60 engineering employees with 120,000 total labour hours. Recompute the results in number 1, using the step-down method. Show your computations. Compare the results in numbers 1 and 2. Which method of allocation do you favour? Why?
3. Refer to Exhibit 12.1 on p. 520 For each type of cost assignment made in number 2 using the step-down method, indicate the assignment type from Exhibit 12.1.

Exhibit 12.1

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Cafeteria, revenue of €100,000 less expenses of €250,000 Engineering General factory administration Cost-allocation bases are budgeted as follows: Production departments Machining Assembly Finishing and painting Employees 120 540 60 Budgeted department costs € 150,000 2,500,000 950,000 Engineering hours worked for produc- tion departments 50,000 20,000 10,000 Total labour hours 300,000 720.000 120,000