The accountant for Kadhim Inc. is preparing the budgets for operating department support service costs. Maintenance costs are allocated based on square feet, and cafeteria costs are allocated based on number of employees. The following data have been collected:
Support Departments Operating Departments
Maintenance Cafeteria Cutting Packaging
Direct costs SAR50,000 SAR45,000 SAR275,000 SAR300,000
Number of employees 15 10 150 250
Square feet 1,500 2,000 3,500 4,000
If the direct method is used, calculate maintenance costs allocated to the cutting department?
If the direct method is used, calculate the total cost (including allocations) for the
packaging department?
Assume you are working for the organization and are requested to allocate support
department costs. Describe how you would choose the best method?
Sample Solution