Question

Hanung Corp has two service departments, Maintenance and Personnel. Maintenance Department costs of $360,000 are allocated on the basis of budgeted maintenance-hours. Personnel Department costs of $110,000 are allocated based on the number of employees. The costs of operating departments A and B are $188,000 and $282,000, respectively. Data on budgeted maintenance-hours and number of employees are as follows
Support Production
Departments Departments
Maintenance Personnel
Department Department A B
Budgeted costs $360,000 $110,000 $188,000 $282,000
Budgeted maintenance-hours NA 880 1230 680
Number of employees 60 NA 290 630
Using the direct method, what amount of Maintenance Department costs will be allocated to Department B?
a. $100,398
b. $128,168
c. $87,742
d. $167,330

Answer 1

Answer:

b. $128,168

Explanation:

Hanung Corp

                                           Service Departments

                              Maintenance Department    Personnel Department

Costs                                $360,000                                $110,000

Cost Driver            budgeted maintenance-hours    number of employees

Budgeted

Maintenance-hours     NA                                              880

Number of employees           60                                     NA

                          Production Departments

                                           Department A                  Department B

Budgeted Costs                    $188,000                                $282,000

Budgeted

Maintenance-hours                1230                                            680

Number of employees             290                                            630

First we find the rate by dividing the total budgeted cost of Maintenance with the budgeted maintenance hours then we multiply it with the maintenance hours of Department to B to get Department B maintenance Costs.

Using the direct method, the amount of Maintenance Department costs will be allocated to Department B

=($ 360,000/ 1230+680 )*680=($ 360,000/ 1910 )*680=$ 128167.53

= $ 128167

So choice B is the correct answer.