Question

5. Al-Bishi Corp. is preparing its year-end reporting and wants to allocate the operating cost of its service departments to its processing departments. The following information relates to its three service departments and its two processing departments Machining department Painting department Direct labour hours 25,100 8,500 Power department Maintenance department Human resources Allocation base Kilowatt hour Square metre Employees Machine hours Direct labour Kilowatt hour Square metre Employees Machine hours 500 1,200 10 1,500 1,000 18 650 800 12 35,200 30,000 95 500,000 20 10,000 hours 250,000 $850,000 60,000 Operating costs $700,000 $450,000 $369,000 $370,000 Using the step method of allocating service department operating costs, starting from left to right, what is the total operating cost for the machining department? a) $819,403 b) $1,069,597 c) $1,877,186 d) $1,919,597

Answer 1

	Power	Maintenance	HR	Machining	Painting	Total allocated
Operating costs	700000	450000	369000	850000	370000
Allocation of Power department costs	-700000
(Total base = 62450 kwh)		16813	7286	394556	281345	700000
	0	466813	376286	1244556	651345
Allocation of Maintenance department costs
(Total base = 39300 Sq mt)		-466813	9503	356346	100965	466813
	0	0	385788	1600901	752310
Allocation of HR cost
(Total base = 115 employees)			-385788	318695	67094	385788
Total operating cost after allocation	0	0	0	1919596	819403
Answer: Option [d] $1,919,597
[Difference in calculation statement amount of $1 is due to approximation differences)