Reference no: EM132605126

Service department cost allocation

J & J Products sources locally grown fruits to produce their famous jams and juices. The company's controller assesses the manager of each department on their ability to control costs. As such, he wants to properly allocate the cost of their 2 major service departments; Janitorial and Human resources to their two production plants, Jam, and Juice.

It should be noted that Janitorial and Human resources also provide services to each other. Janitorial costs are allocated by square metres and Human resources costs are allocated by number of employees. Department costs, along with the square metres each department occupies and the number of employees that worked during August are provided below.

August Data         Janitorial             Human resources             Jam production                Juice production

Budgeted costs        $8,225                $17,940                           $31,720                          $52,400

Actual costs            $9,140                   $18,330                          $28,990                        $55,250

# of employees           6                             3                                    14                           20

Square metres            3,600                     1,590                              5,406                      8,904

Required:

Allocate the costs of the service departments to the operating department. The resulting schedules will include the total cost of operating the Jam production and Juice production departments for August using the appropriate figures.

Apply the costs using the following methods:

Question 1: Allocate service department costs using the direct method.

Question 2: Allocate service department costs using the reciprocal method.

The owner of J & J Products, Quy Vo would like your recommendation on whether they should use the Direct or Reciprocal method of support department cost allocation. Back up your recommendation with a discussion of the advantages and disadvantages of both methods and the reasons for your recommendation. Remember to use pertinent figures from your quantitative analysis.