Butler Home Products has two producing departments, Machining and Assembly, and two service departments, Personnel and Custodial.
The company's budget for April 20X7 is
Service Departments Production Departments
Personnel Custodial Machining Assembly
Direct department costs $32,000 $70,000 $600,000 $800,000
Square feet 2,000 1,000 10,000 25,000
Number of employees 15 30 200 250
Butler allocates personnel costs on the basis of number of employees. Butler allocates custodial costs on the basis of square feet.
1. Allocate personnel and custodial costs to the producing departments using the direct method.
2. Allocate personnel and custodial costs to the producing departments using the step-down method. Allocate personnel costs first.
The solution explains cost allocation using direct and step-down methods