CHATER THREE

3. COST ALLOCATION
3.1 Criteria to Guide Cost Allocation Decision
Here are the four major purposes of cost allocation;
1. To Provide Information for Economic Decision
Cost allocation helps managers to predict the economic effects of planning and control
decisions and to provide feedback for performance evocation.
Further more, it helps managers to decide on issues such as to manufacture a
component part of its product or to purchase it from another manufacturer.
2. To Motivate Manager and Other Employees
This helps to encourage the design of products that are simpler to manufacture or
less costly to service, and to encourage sales representatives to emphasize high-
margin products or services.
3. To Compute Income and Asset Valuation
Cost allocation helps to cost inventories for financial reporting to external parties, and
also to cost inventories for reporting to tax authorities.
4. To justify costs or obtain reimbursement: Sometimes prices are based directly
on costs, i.e. a price includes reimbursement for costs plus some profit margin.
NB. The above four reasons of cost allocation will match with the following general
purpose of cost management system.
1. To provide cost measurement for external reporting
2. To provide cost measurement for strategic decision – making and
3. To provide cost measurement for operational control.
Types of cost Allocation

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 Cost Accounting System

Allocation type 1
Cost allocated to Cost objects 1
Organizational unit Organizational unit

Allocation type 2 Cost Object 2

Cost Allocated from Organizational unit
One organizational Receiving product or
Unit to another Service

Allocation type 3 Cost object 3

Cost allocated to activities Activities, Products
Products services, or customers Services or Customers

Exhibit 3:1 three types of cost Allocation

Exhibit 3:1 shows there are three basic types of cost allocations.
1. Allocation of costs to the appropriate organizational unit: Direct costs are
physically traced to the unit, but costs of resources that are used jointly by
more than one unit are allocated based on the cost driver activity in the
unit. Examples include allocating rent costs to different departments
based on the floor space occupied, allocating general administrative
expenses based on total direct costs, etc.
2. Reallocation of costs from one organizational unit to another: when one
organizational unit provides products or services to another the costs are
transferred along with the products or services. Some organizational units,
called service departments, exist only to support other departments, and
their costs are totally reallocated. Examples of such organizational units
include personnel department, laundry department, in hospitals, legal
department in industrial firm, etc.

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 3. Allocation of costs of a particular organizational unit to activities, products,
services or customers: the pediatrics department of a medical clinic
allocates its costs to patients, the assembly activity of a manufacturing
firm to units assembled, and a tax department of a CPA firm to clients.
The costs allocated to activities, products services, or customers include
those costs allocated to the organizational unit in allocation type 1 and 2
above.
3.2 Allocate the Variable and Fixed Costs of a Service Department To
Other Organizational Unit.
General Guidelines:
The preferred guidelines for allocating service department costs are:
1. Establish part or all of the details regarding cost allocation in advance of
rendering the service rather than after the fact.
2. Allocate variable and fixed cost pools separately.
3. Evaluate performance using budgets for each service department (staff
department) just as for each production department or operating (line)
department.

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 Budgeted unit Rate = Budgeted cost =
Budgeted Total variable costs Total budgeted cost of Lease,
Total Hours of computer Time building and salaries.

Computer Department

Fixed cost Resources

Variable cost resources
200 birr per
hour 100,000 birr

 Energy200 birr Per  Lease

100,000 birr
hour
 Materials  Salaries
 Building

Actual Hours of
Computer Time Used Percent of
Planned capacity

School of Business 30% School of Engineering70%c

Program A Program B Other Program C Program D Other

Programs Programs

Exhibit 3:2 Allocations of variable and fixed cost pools

In this exhibit, all the three types of allocation exist.

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Type1 allocation includes costs such as energy and building costs. These costs
are first accumulated by cost accounting system and then allocated to
organizational units including the computer department.
Type 2 allocations include the allocation of the variable and fixed costs from the
computer department to the business and engineering schools.
Finally, the allocation of business and engineering school costs to programs are
type 3 allocations.
Dear student, suppose there are two major reasons for the allocation:
1. Predicting economic effects of the use of the computer and
2. Motivating the two schools and individuals to use its capabilities more fully.
How should Ambo University allocate the costs of the computer department
(salaries, depreciation, energy and so on) to the two schools?
Let us begin by analyzing the costs of the computer department in detail. The
primary activity performed is computer processing. The computer was acquired
on a five-year lease. Resources consumed include processing time, operator
time energy, materials and building space. Suppose the University has already
performed cost behavior analysis and the budget formula for the forth-coming
year is 100,000 birr fixed cost plus 200 birr variable cost per hour of computer
time used – once again look at exhibit 3.2 Now let us proceed to how to apply
guideline 2, to the topic of the next two sections (variable cost pool and fixed cost
pool)
Variable – Cost Pool
As shown in the exhibit 3.2, costs in the variable cost pool include energy and
materials. The cost driver for the variable cost pool is actual hours of computer
time used. Therefore the university should allocate variable costs as follows:
Budgeted Actual Hours
Unit Rate of computer time used
The cause- and – effect relationship is clear. The heavier the usage, the higher
the total costs. In this example, the rate used would be the budgeted 200 birr per
hour. The rate would be determined by dividing the total budgeted costs of
energy and materials by the total budgeted hours of computer time.

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. Fixed- Cost Pool
Consider again our example of the university computer department. Costs in the
fixed- cost pool include the lease payment, salaries of operators, and occupancy
costs of the building (depreciation, insurance, etc). The cost driver for the fixed-
cost pool is the amount of capacity the two schools estimated they required when
the university acquires the computer facilities. Therefore, fixed costs should be
allocated as follows:
Budgeted percent Total budget fixed costs
Of capacity available for use
Suppose the deans of each school originally predicted the long-run average
monthly usage by business school at 210 hours and by engineering school at
490 hours, a total of 700 hours. These estimates by the deals resulted in a set of
committed fixed costs that remain largely uncontrollable over many years. This
fixed – cost pool would be allocated
Business Engineering
Fixed costs per month
210/700 or 30% of 100,000 30,000 birr 70,000 birr
490/700 or 70% of 100,000

3.3 Allocate the Central Costs of an Organization

Dear student, the need to allocate central costs is a belief that all costs some
how be allocated to the revenue producing (operating) parts of the organization.
When ever possible, the preferred cost driver for central costs is usage, either
actual or estimated but the costs of such services as public relations, top
corporate management overhead corporate planning department are the least
likely to be allocated on the basis of usage data processing, advertising,
operations research are the most likely to choose usage as a cost driver. Many
central costs, such as the president’s salary, public relations, legal services,
income tax planning, company wide advertising, and basic research are difficult
to allocate on the basis of cause and effect. As a result some companies use

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cost drivers such as the revenue of each division, the cost of goods sold by each
division, the total asset of each division, or the total cost (before allocation of the
central costs) of each division to allocate central costs.
Use of Budgeted Sales for Central Cost Allocation
If a company feels it must allocate the costs of central services based on sales,
even though the costs do not, vary in proportion to sales; the use of budgeted
sales is preferable to the use of actual sales. Because this method means that
the fortunes of other departments will not affect the short – run costs of a given
department.
Example: Suppose a company allocates 100 birr of fixed central advertising costs
on the basis of potential sales in two territories.

Territories

A B Total
Budgeted Sales 500 500 1000
Actual Sales 300 600 900
1.Central Advertising
Cost Allocated on Budgeted Sales. 50 50 100
1. Central Advertising cost
Cost Allocated based on
the basis of actual sales. 33 67 100

Compare allocation 1 with 2. Allocation 1 is preferable, because it indicates and

directs attention where it is deserved; as you can perceive, allocation 2 soaks
territory B with more advertising costs because of the achieved result and
relieves territory A despite its lower success. This is an example of the confusion

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that can arise when cost allocations to one consuming department depend on the
activity of other consuming departments.
Dear student, in order to understand more on this issue let you try this activity
first by yourself. And then compare with the solution.
ABC Company allocates all central corporate overhead costs to its divisions.
Some costs, such as specified internal auditing and legal costs are identified on
the basis of time spent. However, other costs are harder to allocate, so the
revenue achieved by each division is used as an allocation base. Included in
such costs are executive salaries, travel, secretarial, utilities, rent, depreciation,
donations, corporate planning and general marketing costs.

Allocations on the basis of revenue for 2005 were as follow:

Division Revenue Allocated costs

(In million) (In million)

A 120 6

B 240 12

C 240 12
Total 600 30

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In 2006, Division A’s remained unchanged, however, division C’s revenue soared
to 280 million birr because of unusual large imports. Division B had expected a
sharp rise in revenue, but severe competitive conditions resulted in a decline in
revenue, reporting only 200 million birr in 2006. The total cost allocated on the
basis of revenue was again 30 million birr, despite rises in other costs in the year
2006.
Required:
1. Based on the actual revenue for the year 2006, compute the allocation of
costs to each division for 2006 –
2. Suppose the budgeted revenues for 2006 were 120, 240, and 280,
respectively, and the budgeted revenue were used as cost driver for
allocation, compute the allocations of the 30, million central costs to each
division.
3. Which method is preferable, allocation using actual revenue (requirement
1) or allocation using budgeted revenue (requirement 2)?

Solutions
1. Allocation using Actual Revenue as a cost driver

Divisions Actual Revenue Percentage Share in Cost to be

(In millions) Total revenue Allocated (in million)
A 120 20% 6
B 200 33% 10

C 280 47% 14

Total 600 100% 30

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 2. Allocation Using Budgeted Revenue as a cost driver

Divisions Budgeted Revenue Percentage share Cost to be allocated

(In millions) in total Revenue (in million)

A 120 18.75% 5.625

B 240 37.5% 11.25

C 280 43.75% 13.125

Total 640 100% 30

3. Dear Student, if you say, Allocation based on the basis of budgeted revenue
(requirement 2) is preferable, you are right Because as you can well grasp from
the given solution allocation 1 charges (allocates) more central costs to division A
and C because of the achieved result by each divisions, and relieves division B
because of unsuccessful by the division as a result of Competition as was
mentioned.
3.4 Use the DIRECT, STEP–DOWN and RECIPROCAL methods to
allocate service department costs to user departments
Dear student as we have discussed in the previous section companies
distinguish operating departments (and operating divisions) from support
departments. An operating department, which is, also called a production
department in manufacturing companies, directly adds value to a product or a
service. A support department, which is also called a service department,
provides the service that assists other departments (operating departments and
other support departments) in the company.

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 In our computer department example we assumed that computer services were
provided only to two other units (Business School and Engineering School). What
if the computer department also provided computer services to other service
units such as administration and Library? As I have already mentioned service
departments often support other service departments in addition to producing
departments. These services are called reciprocal or interdepartmental services.
In this section we will discuss about this reciprocal services cost allocation; be
attentive with me.
Consider a manufacturing company with two producing department molding and
Finishing, and two service departments, Facilities management (rent, heat, and
right, Janitorial service and so on) and personnel. All costs in a given service
department are assumed to be caused by, and there fore vary in proportion to, a
single cost driver. The company decided the best-cost driver for facilities
management costs is square footage occupied and the best-cost driver for
personnel is the number of employees. Exibit 3:3 below shows the direct costs,
square footage Occupied and number of employees for each department. Note
that facilities management provides services for the personnel department in
addition to providing services for the producing departments, and that personnel
aids employees in facilities management as well as those in production
departments.

Service Department Production Department

Facilities Personnel Molding Finishing
Management
Direct department
costs 126,000 birr 24000 birr 100,000 birr 160,000 birr
Square feet
occupied 3000 9000 15000 3000
Number of
Employees

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 20 30 80 320
Direct Labor hours 2100 10,000

Machine hours 30,000 5400

Exibit 3:3 Cost drivers

There are two popular methods for allocating service department costs in such
cases; the direct method and the step– down method
The Direct Method
As its name implies, the direct method ignores other service departments when
allocating any given service department’s costs to the revenue–producing
(operating) departments. In other words, the direct method ignores the services
that facilities management provides for personnel and the services that personnel
provide to facilities management. Facilities management costs are allocated
based on the relative square footage occupied by the production departments
only.
 Total square footage in production departments = 15000 + 3000 = 18000
Facilities management =15000/18000 x 126000 = 105,000 birr
Cost allocated to Molding

Facilities management 3000/18000 x 126000 = 21000 birr

Cost allocated to Finishing
Likewise, personnel department costs are allocated only to the production
departments on the basis of the relative number of employees in production
departments,
 Total number of Employees in production departments = 5400
80 + 320 = 400
 Personnel costs allocated to molding = 80/400 x 24000 = 4800 birr
 Personnel costs allocated to Finishing = 320/400 x 24000 = 1920 birr
Therefore the total cost of the producing department after service department
cost allocated to it under the direct method is as follow:

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Service Departments Production Departments

105,000 birr
Facilities management Molding
126,000 birr 100,000 birr

4800 birr Finishing

Personnel 160,000birr
24000birr 19200 birr

Total
cost of

molding
Its direct cost -------------------------------------------------------- 100,000 birr
Add cost allocated from Facility management ------------------ 105,000 birr
Add cost allocated from personnel ------------------------------ 4800 birr
Total cost ---------------------------------------------------------------- 209800

Total cost of Finishing

Its Direct cost ---------------------------------------------------------- 160,000
Add cost allocated from Facility management ------------------- 21000
Add cost allocated from personnel -------------------------------- 19200
Total cost ------------------------------------------------------------ ------- 200,200
The Step – Down Method
This method recognizes that some service departments support the activities in
other service departments as well as those in operating departments. A
sequence of allocations is chosen, usually by starting with the service
department that renders the greatest service (as measured by costs) to the
greatest number of other service departments. The last service department in the

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sequence is the one that renders the least service to the least number of other
service departments. Once a department’s costs are allocated to other
departments, no subsequent service department costs are allocated back to it.
Dear student in our example, which service department’s cost, should be
allocated first? Yaa, you are right Facilities Management cost should be allocated
first because facilities management renders more support to personnel than
personnel provides for facilities management. Dear student, at this point, I know
that you already raised a question of “how should we determine which of the two
service departments provides more service to the other? Pretty student one way
is to carry out step 1 of step- down with facilities management allocated first and
then repeat it assuming personnel is allocated first. With facilities management
allocated first 42000 (9000/27000 x 126000) birr is allocated to personnel if a
personnel is allocated first 1103 birr (20/420 x 2400) would have been allocated
to facilities management. Because 1,143 is smaller than 42000 facilities
management is allocated first.
Therefore the total cost of the producing department after service department
cost allocated to it under the step down method is as follow:

Production Department
Service Departments

Facilities Molding 100,000 birr

Management 70,000 birr
126,000birr
13200

42000 birr
14000

52,800
Personnel
24000birr Finishing
+42000birr 160,000birr
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Facilities management cost as men tined already is the service department cost
which should be allocated first; therefore: - it is allocated to personnel department
too beside the two producing departments molding and finishing
 Thus, the total square footage in these three departments is
= 9000 + 15000 + 3000 = 27000
 Facilities management cost allocated to molding =
15000/27000 x 126000 = 70,000 birr
 Facilities management cost allocation to Finishing =
3000/27000 x 126000 = 14000 birr
 Facilities management cost allocated to personnel =
9000/27000 x 126000 = 42000 birr

Note
After allocating Facilities management cost we do not allocates any costs
back to facilities management.
The personnel cost to be allocated to the production departments includes
the amount allocated to personnel from the facilities management (42,000
birr) in addition to the direct personnel department costs of 24000 birr hence
the total cost of personnel department to be allocation become 66000 birr
As before this personnel department costs are allocated only to production
departments on the basis of the relative number of employees in production
departments,
 Total number of employees in production department
80 + 320 = 400
 Costs allocated from personnel to molding
80/400 x 6600 = 13200 birr
 Costs allocated from personnel to Finishing

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 320/400 x 66000 = 52800
Thus; the total cost of molding:
Its direct cost ------------------------------------------------ 100,000
Add cost allocated from Facility management --------- 70,000
Add cost allocated from personnel ------------------------ 13200
Total cost ------------------------------------------------- 183,200 birr
Total cost of Finishing
Its direct cost -------------------------------------------- 160,000
Add cost allocated from Facility management ----- 14000
Add cost allocated from personnel ------------------- 52800
Total cost ------------------------------------------ 226800
Comparison of the Two Methods
Compare the costs of the production departments under direct and step – down
methods; the summary of the above computed total costs under the two methods
is presented below in Exibit 3:4
Molding Finishing
Direct Step - Down Direct Step - Down
Direct dept cost 100,000 100,00 160,000 160,00
Allocated from 105,00 70,000 21,000 14,000
Facilities
management
Allocated from 4800 13200 19200 52800
personnel
Total 209,800 183200 200200 226,800
Exibit 3:4 Direct Versus Step – Down Cost Allocation
Note as you can see from this exibit the method of allocation can greatly affect
the costs molding appears to be a much more expensive operation to a manager
using direct method than it does to one using the step – down method
Conversely, Finishing seems more expensive to a manager using the step –
down method.
Dear student, which method do you think is better?

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Generally the step – down method is better, because it recognizes the effects of
the most significant support provided by service departments to other service
departments – In our example, the direct method may ignores the following
possible cause – effect link: If the cost of the facilities management is caused by
the space used (square footage occupied) then the space used by personnel
department causes 42000 birr of facilities management cost. If the space used in
personnel is caused by the member of production department employees
supported, then, the number of production department employees, not the
square footage causes 42000 birr of the facilities management cost. The
producing department with the most employees not with the most square
footage, should bear this cost.
Dear student the greatest virtue of the direct methods is its simplicity. If the two
methods do not produce significantly different results many companies elect to
use the direct method because it is easier for managers to understand.
The Reciprocal Method
The reciprocal method – also called the reciprocal allocation method – allocate
service department costs to producing departments by fully recognizing the
mutual services provided among all support departments
To implement the reciprocal method you are required to formulate and solve
linear equations, which requires three steps as illustrated below
Step1. Express service department costs and service department reciprocal
relationships in the form of linear equation.
Let “F” be complete reciprocated costs of facilities management and “P” be the
complete reciprocated costs of the personnel department. Then we
express data in Exibit 3:3 as follow:
F = 126000 + 20/420P ---------------------- 1
P = 24000 + 9000/27000F ----------------- 2
 The ratio 20/420 or 4.76% in equation (1) is the percentage of
personnel services used by facilities management.
 The 9000/27000 or 33.33% in equation (2) is the percentage of
facilities management used by the personnel department.

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  By compete reciprocated costs in equation (1) and (2) we mean the
support department’s own costs plus any interdepartmental cost
allocations.
Step2. Solve the set of linear equations to obtain the complete reciprocated
costs of each service departments.
Substituting equation (2) in to (1)
F = 126000 + 2/42P
F = 126000 + 2/42 [24000 + 9/27(F)]
F = 126000 + 1143 + 18/1134 F
F = 127143 + 18/1134F
(1-18/1134) F = 127143
F = 127143/(1-18/1134) = 129,194
Substituting the amount of “F” in Equation (2)

P = 24000 + 9000/27000 F
P = 24000 + 9/27(129,194)
= 67065
Step3. Allocate the complete reciprocated costs of each service department to all
other departments (both service departments and operating departments)
on the basis of cost driver used.
Accordingly:
Total square footage in all departments other than the facilities
management = 9000 + 15000 + 3000 = 27000
 Facilities management complete reciprocated cost allocated to molding =
15000/27000 x 129,194 = 71774
 Facilities management complete reciprocated cost allocated to Finishing =
300/27000 x 129,194 = 14,355
 Facilities management complete reciprocated cost allocated to personnel =
9000/27000 x 129,194 = 43,065
Total number of employees in all departments other than personnel = 20 +80
+320 = 420

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Personnel Department complete reciprocated cost allocated to molding =
80/420 x 67065 = 12774
 Personnel Department complete reciprocated cost allocated to Finishing =
320/420 x 67065 = 51,097
 Personnel Department complete reciprocated cost allocated to Facilities
management = 20/420 x 67065 = 3194

51097 Finishing 160,000

Reciprocal cost allocation

Service Department Production Department

Molding
Facilities
71774 100,000
Management

12774

3194 43065

14355
Personnel
24000 + 43065 = 67065

Dear student, as you may perceived, there is a difference between complete

reciprocated costs of the support department and its direct cost
Service Department Complete Direct cost Difference
Reciprocated cost
Facilities management 129,194 126000 3194

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Personnel 67065 24000 43065
Each support department’s complete reciprocated cost is greater than the
budgeted direct cost amount to take in to account that the allocation of support
costs will be made to all departments using its services and not just to operating
departments. It is this step that ensures that the reciprocal method fully
recognizes all interrelationships among support departments as well as operating
departments. However, the total costs allocated to operating departments always
remain the same amount, i.e the total direct costs of support departments, here
(126000 + 24000 = 150,000)

Solved problem
Consider castle ford engineering, which operates at practical capacity to
manufacture engines used in electric- power generating plants. Castle ford has
two support departments and two operating departments in its manufacturing
facility.
Support Departments Operating Departments
 Plant and Equipment maintenance ►Machining
 Information ► Assembly
The two support departments at castle ford provide reciprocal support to each
other as well as support to the two operating departments. Costs are
accumulated in each department for planning and control purposes
Exhibit 3:5 below displays the data.
Service Departments Production Departments
Plant Information Machining Assembly
Maintenance system
Budgeted
manufacturing
overhead before any 600,000 116000 400,000 200,000
inter-department cost
allocation

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Support Work Furnished by:
Plant maintenance 1600 2400 4000
Budgeted labor hour
Percentage 20% 30% 50%
Information system 200 1600 200
Budgeted computer hour -
Percentage 10% - 80% 10%

Dear learner in this exibit – the percentage is computed by dividing the cost
driver in particular department by total cost driver for the service department, For
example, the cost driver for plant maintenance is Labor hour, and a total of 8000
(1600 + 2400 + 4000) labor hour is budgeted. This means that this support
(service) department provides a total of 8000 hours of support work out of this
20% (1600/8000), 30%(2400/8000) and 50%(4000/8000) of service is provided
for information system, machining and Assembly respectively.
Required
Based on this information allocate the budgeted service department costs to the
production departments using:
1. Direct method
2. Step – Down method
3. Reciprocal method
Solutions
1. The Direct Method
Plant and maintenance cost is allocated to production departments based on
Labor – hour supported by the production departments only.
 Total Labor hour supported by production departments only
= 2400 + 4000 = 6400
 Plant maintenance costs allocated to machining
= 2400/6400 x 600,000 = 22500birr
 Plant maintenance costs allocated to Assembly
= 4000/6400 x 600,000 = 375000

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 Likewise, Information system cost is allocated to production departments based
on the computer hour supported by the production department only:
 Total computer hour supported by Production departments only
= 1600 + 200 = 1800
 Information system costs allocated to machining
= 1600/1800 x 116000 = 103,111 birr
 Information system costs allocated to Assembly
= 200/1800 x 116000 = 12889 birr

Support Departments Operating Departments

Plant maintenance Machining

600,000 birr 225000103,111 400,000 birr
37500
0
Information system Assembly
116000 birr 12,889 200,000 birr

2. The Step – Down Method

Plant maintenance costs should be allocated first; this is because as shown in
exibit 3:5 plant maintenance provides 20% of its services to information system;
but the information system provides only 10% of its service to plant maintenance.
Plant maintenance cost is allocated in to the three departments based on the
percentage already computed as;
To: Information system = 20% x 600,000 = 120,000 birr
To: Machining -------- = 30% x 600,000 = 180,000 birr
To: Assembly --------- = 50% x 600,000 = 300,000 birr
The total cost of Information system to be allocated is now 120,000 + 116000 =
236000; this cost is allocated to only the production departments. Thus,
information system cost allocated to:

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Machining = 1600/1800 x 236000 = 209778
Assembly = 200/1800 x 236000 = 26,222

Support Departments Operating Departments

Plant maintenance Machining

600,000 180,000 400,000

120,000 209778

300,000
Assembly
Information system 200,000
236,000 = 116000 + 120000 26222

3. Reciprocal Method
Step1. Express Support Department costs and support department Reciprocal
Relationships in the form of linear equations:
Let PM be the complete reciprocated costs of plant maintenance and IS be the
complete reciprocated costs of information systems: then
PM = 6000,000 + 0.1IS --------- (1)
IS = 116000 + 0.2PM --------- (2)
Step2. Solve the set of Linear Equations to obtain the complete Reciprocated
costs of each support Department:
Substituting equation (2) in to (1)
PM = 600,000 + 0.1 [(116,000 +0.2 PM]

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PM = 600,000 +11600 + 0.02 PM
0.98Pm =611,600; 611600/0.98
PM = 624,082
Substituting the value of PM in to Equation (2)
IS = 116,000 + 0.2 (624,082)
= 116,000 + 124,816
IS = 240,816

Step3. Allocate the complete Reciprocated costs of each support department to

all other department (both support departments and operating
Departments) on the basis of usage percentage
Thus the complete reciprocated plant maintenance cost of 624,082 is allocated
to:
 Information system = 20% x 624,082 = 124,816
 Machining -------- = 30% x 624,082 = 182,225
 Assembly --------- = 50% x 624,082 = 312,041
The complete reciprocated plant maintenance cost of 240,816 is allocated to:
 Plant maintenance = 10% x 240,816 = 24,082
 Machining -------- = 80% x 240,816 = 192,653
 Assembly ------- = 10% x 240,816 = 24,082

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