Question

17. Albemarle, Inc., has two producing departments (X and Y). Each producing department is held responsible for a share of the costs of a support department. Actual and budgeted data are as follows: 2018 Actual Support department hours used: Department 8,000 Department Y Total hours 16,000 24,000 Support department costs: Actual support department costs Budgeted fixed support dept. costs $72,000 $24,000 Budgeted variable rate per hour $ 3.00 Normal, budgeted support department usage is 12,000 hours each for Department X and Department Y. Required: a. Assuming the purpose is product costing, allocate the costs of the support department using the direct method. b. Assuming the purpose is to evaluate performance, allocate the costs of the support department using the direct method. C. Briefly identify and describe the underlying objectives behind allocating Support Department costs to producing Departments.

Answer 1

a	Allocation using direct method
	Particulars	Support department	X	Y
	Actual costs	72000	0	0
	Allocation: X: 8000/24000 * 72000 Y: 16000/24000 * 72000	-72000	24000	48000
	Total costs	0	24000	48000
b	If we want to evaluate performance, we should allocate the budgeted costs
	Budgeted costs:
	Fixed costs	24000
	Variable costs ($ 3 * (12000+12000))	72000
	Total budgeted costs	96000
	Allocation using direct method
	Particulars	Support department	X	Y
	Budgeted costs (fixed)	24000	0	0
	Allocation: X: 12000/24000 * 24000 Y: 12000/24000 * 24000	-24000	12000	12000
	Variable costs	72000
	Allocation (Equal)	-72000	36000	36000
	Total costs	0	48000	48000

c. Allocation of support department costs to production department is done to ascertain the right cost of the product. Also, it helps in evaluating performance by comparing actual costs with budgeted costs.