The Lucas Manufacturing Company has two production departments (fabrication and assembly)and three service departments (general factory administration,factory maintenance,and factory cafeteria).A summary of costs and other data for each department,prior to allocation of service department costs for the year ended June 30,appears below: The costs of the general factory administration department,factory maintenance department,and factory cafeteria are allocated on the basis of direct labor hours,square footage occupied,and number of employees,respectively. Assuming that Lucas elects to use the sequential method to distribute service department costs (starting with the factory cafeteria),what would be the amount of factory cafeteria costs that would be allocated to the factory maintenance department?

Question

The Lucas Manufacturing Company has two production departments (fabrication and assembly)and three service departments (general factory administration,factory maintenance,and factory cafeteria).A summary of costs and other data for each department,prior to allocation of service department costs for the year ended June 30,appears below: The costs of the general factory administration department,factory maintenance department,and factory cafeteria are allocated on the basis of direct labor hours,square footage occupied,and number of employees,respectively.  Assuming that Lucas elects to use the sequential method to distribute service department costs (starting with the factory cafeteria),what would be the amount of factory cafeteria costs that would be allocated to the factory maintenance department?

Quizplus · Accepted Answer

According to the sequential method, the first department to allocate service department costs to production departments is the factory cafeteria. The factory cafeteria costs are allocated based on the number of employees in each production department. The factory maintenance department had 8 employees, while the total number of employees in all production departments was 40. Therefore, the factory maintenance department would be allocated 8/40 or 20% of the total factory cafeteria costs.

Factory cafeteria costs = $34,800 
Factory maintenance department allocated cafeteria costs = 20% of $34,800 = $6,960.

Therefore, the correct answer is B.

The Lucas Manufacturing Company Has Two Production Departments (Fabrication and Assembly)and