Question

Golden Leaves Company has two support departments, Maintenance Department (MD) and Personnel Department (PD), and two producing departments, P1 and P2. The Maintenance Department costs of $30,000 are allocated on the basis of standard service hours used. The Personnel Department costs of $4,500 are allocated on the basis of number of employees. The direct costs of Departments P1 and P2 are $9,000 and $15,000, respectively.

Data on standard service hours and number of employees are as follows:

                                                            MD     PD       P1        P2

Standard service hours used               100      50        300      150

Number of employees                        10        20        100      90

Direct labor hours                               50        50        250      250

Using the sequential method, with the support department with the highest percentage of interdepartmental service is allocated first, calculate the total cost of the two production departments P1 and P2 after the allocation.

Answer 1

Allocate maintainence department first as it has highest percentage of interdepartmental service .

	MD	PD	P1	P2
Direct costs	$30,000	$4,500	$9,000	$15,000
cost of MD	-$30,000	$3000($30,000*50)/(50+300+150)	$18,000($30,000*300)/(50+300+150)	$9,000 ($30,000*150)/(300+50+150)
Cost of PD allocated	-	-$7,500(3000+4500)	$3,947.37($7,500*100)/190	$3552.63($7,500*90)/190
Total costs			$30,947.37[$9,000+$18,000+$3947,37)	$27,552.63($15,000+9,000+$3552.63)

round off if required