Question

Brownley Company has two service departments and two operating (production) departments. The Payroll Department services all three of the other departments in proportion to the number of employees in each. The Maintenance Department costs are allocated to the two operating departments in proportion to the floor space used by each. Listed below are the operating data for the current period: Production Depts. Service Depts. Payroll $24,400 Maintenance Milling $96,500 Assembly $145,400 $35,500 Direct costs No. of personnel Sq. ft. of space 105 35 35 14,000 19,000 The total cost of operating the Milling Department for the current period is (Do not round your intermediate calculations):

Answer 1

Direct costs Payroll costs allocated Maintenance cost allocated Total cost of operating Milling $96,500 $4,880 ($24,400 x 35 / (35+35+105)] $17,131 ($40,380 x 14,000 sq. ft/ (14,000 + 19,000)] $118,510.91 or = $118,511 [lf rounded-off to zero decimal place) Workings: Direct costs Payroll costs allocated Total deparment costs Maintenance $35,500 $4,880 ($24,400 x 35 / (35+35+105)] $40,380 NOTE: As payroll department's costs are allocated to maintenance department also, the payroll costs shall be allocated to maintenance department first. After allocating it, total maintenance department's costs shall be allocated to Milling and Assembly departments. Accordingly, Maintenance department's direct costs plus payroll's allocated costs totaling $40,380 is allocated to Milling department on the basis of floor space occupied.