Memphis Manufacturing has two service departments, maintenance and personnel, an
ID: 2492003 • Letter: M
Question
Memphis Manufacturing has two service departments, maintenance and personnel, and three production departments, fabrication, assembly, and packaging. Service costs are allocated to producing departments using the direct method. Information on overhead in each department and possible allocation bases appears below:
Maintenance Personnel Fabrication Assembly Packaging
Cost $180,000 $224,000
Machine Hours 10,000 30,000 50,000
Employees 8 4 40 30 30
How much maintenance cost will be allocated to packaging?
$20,000
$50,000
$60,000
$100,000
Explanation / Answer
Departments Maintenance Personnel Fabrication Assembly Packaging. Total Ovehead Cost in Service departments 180,000 224,000 Machine Hours 10,000 30,000 50,000 90,000 % of Machine hours 11.11% 33.33% 55.56% Allocation of Maintenance cost on Machine hour basis 20,000 60,000 100,000 180,000 So Maintenance cost allocated to Packaging Dept =$100,000