Joe's Tire Company has two support departments, Personnel and
Maintenance. The Maintenance Department costs of $80,000 are
allocated on the basis of standard service hours used. The
Personnel Department costs of $20,000 are allocated based on the
number of employees. Costs of Departments A and B are $40,000 and
$60,000, respectively.
Data on standard service hours and number of employees are as
follows:
Maintenance Dept. |
Personnel Dept. |
Production Dept. A | Production Dept. B | |
Standard service hours used | 200 | 200 | 240 | 160 |
Number of employees | 10 | 20 | 40 | 120 |
How much of the cost of the Personnel Department is
allocated to Department B using the direct method?
a) $12,632
b) $15,000
c) $48,000
d) $8,000
e) $13,333
Personnel Department cost is $20,000
Allocation is based on the number of employees in production department
No of Employees In Production Dep A 40
No of Employees In Production Dep B 120
Total No of Employees In both Production Dep is = 40+120 = 160
Cost Allocation Between Production Dep A & B of Personnel Department $20,000
Production Dep A = (Cost X No of employees In Dep A)/Total No of Employees
Production Dep A = ($20,000X40)/160 = $5,000
Production Dep B= (Cost X No of employees In Dep B)/Total No of Employees
Production Dep B =($20000X120)/160= $15,000
Therefore From the options OPTION B is Correct
Joe's Tire Company has two support departments, Personnel and Maintenance. The Maintenance Department costs of $80,000...
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