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Problem 11-54 (Static) Step Method with Three Service Departments (LO 11-3)

Model, Inc., produces model automobiles made from metal. It operates two production departments, Molding and Painting, and has three service departments, Administration, Accounting, and Maintenance. The accumulated costs in the three service departments were $250,000, $400,000, and $200,000, respectively. Management is concerned that the costs of its service departments are getting too high. In particular, managers would like to keep the costs of service departments under $3.50 per unit on average. You have been asked to allocate service department costs to the two production departments and compute the unit costs. The company decided that Administration costs should be allocated on the basis of square footage used by each production and service department. Accounting costs are allocated on the basis of number of employees. Maintenance costs are allocated on the basis of the dollar value of the equipment in each department. The use of each base by all departments during the current period follows.

Direct costs of the Molding Department included $237,500 in direct materials, $337,500 in direct labor, and $112,500 in overhead. The Painting Departments direct costs consisted of $210,000 in direct materials, $200,000 in direct labor, and $75,000 in overhead.

Required: a. Using the step method, determine the allocated costs and the total costs in each of the two producing departments. Ignore self-usage (for example, ignore work done by Administration for itself). Rank order the allocation as follows: (1) Maintenance, (2) Accounting, and (3) Administration. b. Assume that 100,000 units were processed through these two departments. What is the unit cost for the sum of direct materials, direct labor, and overhead (1) for Molding, (2) for Painting, and (3) in total? c-1. Compute the cost per unit for the service department costs allocated to the production departments. c-2. Did the company meet management's standards of keeping service department costs below $3.50 per unit in the Molding Department? c-3. Did the company meet management's standards of keeping service department costs below $3.50 per unit in the Painting Department?

Allocation Base Building area Employees Equipment value (in thousands) Administration 10,000 18 $ 6.00 Used by Accounting Maintenance 30,000 20,000 10 12 $120.00 $ 17.50 Molding 360,000 70 $ 312.00 Painting 90,000 100 $162.00 Req A Reg B Reg C1 Reg C2 Reg C3 Using the step method, determine the allocated costs and the total costs in each of the two producing departments. Ignore self-usage (for example, ignore work done by Administration for itself). Rank order the allocation as follows: (1) Maintenance, (2) Accounting, and (3) Administration. (Do not round intermediate calculations. Negative amounts should be indicated by a minus sign. Round your final answer to the nearest whole dollar amount.) Show less MODEL, INC. Step Method To Maintenance Accounting Administration Molding Painting Direct Costs FROM Maintenance Accounting Administration Totals Reg A Reg B Reg C1 Reg C2 Reg C3 Assume that 100,000 units were processed through these two departments. What is the unit cost for the sum of direct materials, direct labor, and overhead (1) for Molding, (2) for Painting, and (3) in total? (Do not round intermediate calculations. Round your answers to 2 decimal places.) Unit Cost Molding Painting Total Req A Reg B Req C1 Reg C2 Reg C3 Compute the cost per unit for the service department costs allocated to the production departments. (Do not round intermediate calculations. Round your answers to 2 decimal places.) Unit Cost Molding Painting Reg A Reg B Reg C1 Reg C2 Reg C3 Did the company meet management's standards of keeping service department costs below $3.50 per unit in the Molding Department? Yes ONO Req A Reg B Reg C1 Reg C2 Reg C3 Did the company meet management's standards of keeping service department costs below $3.50 per unit in the Painting Department? Yes No

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