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:

Direct labor hours: Assembly, 80,000; Machining, 40,000

Floor space occupied: Factory Office, 10%; Assembly, 40%;

Machining, 50%

218 Principles of Cost Accounting

Required:

Prepare flexible budgets for factory overhead at the 1,000, 2,000,

and 4,000 unit levels. (Hint: You must first decide which of the

listed costs should be considered variable and which should be

fixed.)