Purchase Solution

# Direct method allocating to production departments

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A1 Company has two production departments: D and J. Stephanie also has 3 service departments: Personnel, Administration, and Shipping. Shipping costs are allocated on the basis of number of packages, while Personnel and Administration costs are allocated using number of employees. Assume that the ranking of the benefits provided is in the order listed below.

Department Costs Employees # of Packages
Personnel \$600,000 25 7,000
Shipping 700,000 12 27,500
D 500,000 10 5,000
J 400,000 15 6,000

1. Using the direct method, what amount of personnel costs is allocated to Department J (rounded to the nearest \$)?

2. Using the step method, what amount of Administration costs is allocated to Department D (rounded to the nearest \$)?

3. Using the step method, what amount of Personnel costs is allocated to Department J (rounded to the nearest \$)?

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Your tutorial gives you schedules in Excel. Click in cells to see calculations. Instructional notes are left for you on sheet.

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