Managerial Accounting

Question

The building maintenance department for Taylor Manufacturing Company budgets annual costs of $5,272,120 based on the expected operating level for the coming year. The costs are allocated to two production departments. Taylor is considering two allocation bases for assignment of costs to departments: (1) square footage and (2) direct labor hours. The following data relate to the potential allocation bases:

Production Dept. 1 Production Dept. 2
Square footage 29,160 40,210
Direct labor hours 40,210 29,160

Calculate the costs allocated to the production departments using each allocation base.

Production Dept. 1 Production Dept. 2
Square footage $ $
Direct labor hours $ $

Answer 1

Allocation of 5,272,120 based on square footage:

Department 1 29,160SF = $2,216,160

Department 2 40,210SF = $3,055,960

 

Allocation of 5,272,120 based on Labor hours:
Department 1 40,210hrs = $3,055,960
Department 2 29,160hrs = $2,216,160