White Company has two service departments and two operating (production) departments. The Payroll Department services all...
White 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:
| Service Depts. | Production Depts. | |||
| Payroll | Maintenance | Milling | Assembly | |
| Direct costs | $20,400 | $25,500 | $76,500 | $105,400 |
| No. of personnel | 15 | 15 | 45 | |
| Sq. ft. of space | 10,000 | 15,000 | ||
The total cost of operating the Milling Department for the current
period is:
| A. |
$76,500. |
|
| B. |
$92,412. |
|
| C. |
$90,780. |
|
| D. |
$15,912. |
|
| E. |
$14,28 |
Homework Answers
Answer
- Allocation of Payroll cost:
>To maintenance = $ 20400 x 15/(15+15+45) = $ 4080
>To Milling = $ 20400 x 15/(15+15+45) = $ 4080 - Allocation of Maintenance cost:
>to milling = ($25500 + 4080) x 10000/(10000 + 15000)
= 29580 x 10000 / 25000
= $ 11832 - Total operating cost of Milling Department
= $ 76500 direct cost + 4080 + 11832
= $ 92,412 - Correct Answer = Option ‘B’ $ 92412
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