Question

Jake’s Battery Company has two service departments, Maintenance and Personnel. Maintenance Department costs of $160,000 are allocated on the basis of budgeted maintenance-hours. Personnel Department costs of $40,000 are allocated based on the number of employees. The costs of operating departments A and B are $80,000 and $120,000, respectively. Data on budgeted maintenance-hours and number of employees are as follows: Support Departments Production Departments Maintenance Department Personnel Department A B Budgeted costs $160,000 $40,000 $80,000 $120,000 Budgeted maintenance-hours NA 400 480 320 Number of employees 20 NA 80 240 Using the direct method, what amount of Maintenance Department costs will be allocated to Department B? Group of answer choices
A. $48,000
B. $64,000
C. $78,000
D. $96,000

Answer 1

Answer:

D. $96,000

Explanation:

We will allocate the cost on maintenance by first stablishing a rate per maintenence hour:

As this is direct method we aren''t doing an allocation to other service department we directly allocate against production department A and B

total hours:  480 + 320 = 800

160,000 total cost /800 hours = 200 per hour

Department B hours: 480

allocate to department B: 480 x 200 = 96,000