Acie Company has two service departments and three production departments, each producing a separate product....
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Acie Company has two service departments and three production departments, each producing a separate product. For a number of years, Acie has allocated the costs of the service departments to the production departments on the basis of the annual sales dollars. In a recent audit report, the internal auditor stated that the distribution of service department costs on the basis of annual sales dollars would lead to serious inequities. It was recommended that maintenance and engineering service hours be used as a better service cost allocation basis. For illustration purposes, the following information was appended to the audit report:
Service Departments
Maintenance
Engineering
Maintenance hours used
400
Engineering hours used
400
Department direct costs
$12,000
$54,000
Production Departments
Department A
Department B
Department C
800
200
200
800
400
400
$80,000
$90,000
$50,000
Using the simultaneous/algebraic method, what would be the total Engineering Department cost after allocation of inter service department costs, but before allocation to the Maintenance and Production Departments?
Acie Company has two service departments and three production departments, each producing a separate product. For a number of years, Acie has allocated the costs of the service departments to the production departments on the basis of the annual sales dollars. In a recent audit report, the internal auditor stated that the distribution of service department costs on the basis of annual sales dollars would lead to serious inequities. It was recommended that maintenance and engineering service hours be used as a better service cost allocation basis. For illustration purposes, the following information was appended to the audit report:
Service Departments | Maintenance | Engineering |
Maintenance hours used |
| 400 |
Engineering hours used | 400 |
|
Department direct costs | $12,000 | $54,000 |
Production Departments | ||
Department A | Department B | Department C |
800 | 200 | 200 |
800 | 400 | 400 |
$80,000 | $90,000 | $50,000 |
Using the simultaneous/algebraic method, what would be the total Engineering Department cost after allocation of inter service department costs, but before allocation to the Maintenance and Production Departments?
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