Question: Factory Administration Factory Maintenance Building & Grounds Machining Assembly Budgeted costs $68,000 $60,000 $53,000 $1,520,000 $1,760,000 Square footage 1,000 2,000 4,000 70,000 30,000 Total Labour
Factory Administration
Factory Maintenance
Building & Grounds
Machining
Assembly
Budgeted costs
$68,000
$60,000
$53,000
$1,520,000
$1,760,000
Square footage
1,000
2,000
4,000
70,000
30,000
Total Labour hours
28,000
24,000
39,000
480,000
320,000
The GMAC Corporation has three service departments (Factory Administration, Factory Maintenance, Buildings & Grounds) and two producing departments (Machining, Assembly). They are currently evaluating several methods of allocating the service departments budgeted costs to producing departments. Accordingly, the following information has been prepared for the month of June 2018. Factory Factory Building & Machining Assembly Administration Maintenance Grounds Budgeted costs $68,000 $60,000 $53,000 $1.520,000 $1,760,000 Square footage 1,000 2,000 4,000 70,000 30,000 Total Labour 28,000 24,000 39,000 480,000 320,000 hours The costs of the Factory Administration and building and grounds departments are allocated on the basis of total labour hours and square footage, respectively. However, the costs of the Factory Maintenance department are allocated on the basis of percentage of services rendered: 20% for Building and Grounds, 50% for Machining, and 30% for Assembly. Required: 1. Allocate the service department costs to the producing departments using the direct allocation method. (4 Marks) 1. Using the reciprocal method, provide simultaneous equations including the mutual services provided among all services departments for the factory maintenance, factory administration and building and grounds departments (the simultaneous equations do not have to be resolved). (3 Marks) 3. Using the step-down method, allocate the service department costs to the producing departments, the ranking order is determined on the basis of the highest to lowest costs of services provided to other departments. Determine the factory overhead application rates for the producing departments. The bases used are machine hours, with 400,000 estimated for Machining and 300,000 estimated for assembly. (8 Marks)
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