Question

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.
Service Departments Operating Departments
Administrative Facilities Assembly Wholesaling
Dept Costs $26,840 $59,400 $183,430 $321,190

Employee hours 4,000 2,000 29,000 15,000 Space occupied 2,000 2,000 30,000 6,000 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:________

Answer 1

Answer:

Total allocated costs= $19,250.44

Explanation:

Giving the following information:

Service Departments:

Administrative= $26,840

Facilities= $59,400

Operating Departments:

Assembly= $183,430

Wholesaling= $321,190

Employee hours= 29,000 + 15,000= 44,000 hours

Space occupied= 30,000 + 6,000= 36,000  

First, we need to calculate the proportion of hours and space used for Wholesaling.

Employee hours:

Whole= 15,000/44,000= 0.341

Space occupied:

Whole= 6,000/36,00= 0.17

Now, we can allocate costs tho Wholesaling.

Administrative= 26,840*0.341= $9,152.44

Facilities= 59,400*0.17= $10,098

Total allocated costs= $19,250.44