Jamison Company has two service departments and two producing departments. Square footage of space occupied by each department follows:

Custodial services 1,600 feet
General administration 3,600 feet
Producing Department A 8,600 feet
Producing Department B 8,600 feet
22,400 feet

The department costs of Custodial Services are allocated on a basis of square footage of space. If Custodial Services costs are budgeted at $44,000, the amount of cost allocated to General Administration under the direct method would be:

The direct allocation method is an accounting technique for charging the overhead costs of service departments to other units or departments of a business in an attempt to ensure that these costs are absorbed by production units or jobs.

The direct method is distinguished from the step-down method and the reciprocal method of cost allocation.

Data and Calculations:

Custodial services 1,600 feet

General administration 3,600 feet

Producing Department A 8,600 feet

Producing Department B 8,600 feet

22,400 feet

Total Custodial Services costs = $44,000

Allocation method = direct method

Thus, the total cost allocated from the Custodial Services to the General Administration under the direct method would be $3,745 (1,600/18,800 x $44,000).

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