Gustavson Corporation uses the direct method to allocate service department costs to operating departments. The company has two
service departments, Administrative and Facilities, and two operating departments, Assembly and Wholesaling. Administrative costs are allocated on the basis of employee hours and Facilities costs are allocated on the basis of space occupied. The total Wholesaling Department cost after the allocations of service department costs is closest to which value:
a. $337,530b. $331,090c. $340,240d. $340,426
a. $337,530b. $331,090c. $340,240d. $340,426
1 answer:
Answer:
C) $340,240
Explanation:
Service Department Operating Department
Administrative Facilities Assembly Wholesaling
Departmental costs $26,840 $59,400 $183,430 $321,190
Employee time (hours) 4,000 2,000 29,000 15,000
Space occupied - sq ft 2,000 2,000 30,000 6,000
total administrative costs = $26,840
total employee hours = 29,000 + 15,000 = 44,000
administrative cost per employee hour = $26,840 / 44,000 = $0.61
total facilities costs = $59,400
total square feet = 30,000 + 6,000 = 36,000
administrative cost per employee hour = $59,400 / 36,000 = $1.65
total Wholesaling Department cost = $321,190 + ($0.61 x 15,000) + ($1.65 x 6,000) = $321,190 + $9,150 + $9,900 = $340,240
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