1. What are the costs allocated to the two production departments using (a) the direct method, (b) the step method, when the sourcing department that provides the greatest percentage of services to other service departments goes first), and (c) the reciprocal method? 2. What are the total costs in the production departments after allocation?
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
Logan Products has two production departments—assembly and finishing. These are supported by two service departments—sourcing (purchasing and handling of materials and human resources) and operations (work scheduling, supervision, and inspection). Logan has the following labor hours devoted by each of the service departments to the other departments.
| Total Labor Hours Used by Departments | ||||
| Sourcing | Operations | Assembly | Finishing | |
| Sourcing | - | 20,000 | 40,000 | 60,000 |
| Operations | 10,000 | - | 60,000 | 50,000 |
The costs incurred in the plant are as follows:
| Departments | Departmental Costs | ||
| Sourcing | $ | 171,000 | |
| Operations | 215,000 | ||
| Assembly | 414,000 | ||
| Finishing | 259,000 | ||
| Total | $ | 1,059,000 | |
Required:
Use four decimal places (e.g., 33.3333%) in your calculation of percentages.
1. What are the costs allocated to the two production departments using (a) the direct method, (b) the step method, when the sourcing department that provides the greatest percentage of services to other service departments goes first), and (c) the reciprocal method?
2. What are the total costs in the production departments after allocation?
(For all requirements, do not round intermediate calculations. Round your final answer to nearest whole dollar amount.
Direct Method:
The direct allocation method is a technique for charging the cost of service departments to other parts of a business. The direct method allocates costs of each of the service departments to each operating department based on each department’s share of the allocation base
Step Method:
This method allocates service costs to the operating departments and other service departments in a sequential process. The sequence of allocation generally starts with the service department that has incurred the greatest costs.
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