Question

Goldberg Corporation has three production departments A, B, and C. Goldberg Corporation also has two service departments, Administration and Personnel. Administration costs are allocated based on value of assets employed, and Personnel costs are allocated based on number of employees. Assume that Administration provides more service to the other departments than does the Personnel Department.
Dept. Direct Costs Employees Asset Value
Admin. $900,000 25 $450,000
Personnel 350,000 10 600,000
A 700,000 15 300,000
B 200,000 5 150,000
C 250,000 10 800,000

Refer to Goldberg Corporation. Using the direct method, what amount of Personnel costs is allocated to B (round to the nearest dollar)?

Answer 1

Answer:

$ 58,333 Personnel costs is allocated to B

Explanation:

According to the given data the Employees to be considered for allocation = A+B+C = 15+5+10 = 30 employees

The Personnel Dept direct cost = $ 350,000

No. of employees for B = 5

Therefore, in order to calculate what amount of Personnel costs is allocated to B, we have to use the following formula:

Allocated cost =Personnel Dept direct cost x No. of employees for B/Total employees =

Allocated cost = $ 350,000 x 5/30 = $ 58,333

$ 58,333 Personnel costs is allocated to B