Reference no: EM132760263

Question - First Co. produces model automobiles made from metal. It operates two production departments, Molding and Painting, and has three service departments, Administration, Accounting and Maintenance. The accumulated costs in the three service departments were P250,000, P400,000 and P200,000, respectively. Management is concerned that the costs of its service departments are getting too high. In particular, managers would like to keep the costs of service departments under P3.50 per unit on average. You have been asked to allocate service department costs to the two production departments and compute the unit costs.

The Company decided that Administration costs should be allocated on the basis of square footage used by each production and service departments. Accounting costs are allocated on the basis of number of employees. Maintenance costs are allocated on the basis of the peso value of the equipment in each department. The use of each base by all departments during the current period follows:

Allocation Base	USED BY
	Admin	Accounting	Maintenance	Molding	Painting
Building Area	10,000 sq.ft	30,000 sq.ft	20,000 sq.ft	360,000 sq.ft	90,000 sq.ft
Employees	18	10	12	70	100
Equipment Value	P6,000	P120,000	P17,500	P312,000	P162,000

Direct costs of the Molding Department included P237,500 of direct materials, P337,500 in direct labor, and P112,500 in Overhead. The Painting Department's direct costs consisted of P210,000 in direct materials, P200,000 in direct labor, and P75,000 in overhead.

Required -

a. Using the Direct Method, determine the allocated costs and the total costs in each of the two producing departments. Assume that 100,000 units were processed through these departments, compute for the unit cost for

(1) Molding

(2) for Painting, and

(3) in total.

b. Using the Step Method, determine the allocated costs and the total costs in each of the two producing departments. Rank order the allocation as follows: (1) Maintenance, (2) Accounting, and (3) Administration.

Assume that 100,000 units were processed through these departments, compute for the unit cost for (1) Molding, (2) for Painting, and (3) in total.

c. Using the Algebraic Method, determine the allocated costs and the total costs in each of the two producing departments. Assume that 100,000 units were processed through these departments, compute for the unit cost for (1) Molding, (2) for Painting, and (3) in total.