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A Ltd has two service departments, maintenance and IT support, that assist two production departments, assembly and machining. Budgeted costs of maintenance and IT support are $800,000 and $1,800,000 respectively. Usage of the service departments' output during the year is anticipated to be:
Services provided to: Maintenance IT support Maintenance Assembly
Maintenance - 20 % 20% 60% IT support 10 - 60% 30%
Required:
a) Use the direct method to allocate the costs of maintenance and IT support departments to assembly and machining departments. Please show all calculations/workings.
b) Use the step-down method to allocate the costs of maintenance and IT support departments to assembly and machining departments. Please show all calculations/workings.
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