Mike\'s Battery Company has two service departments, Maintenance and Personnel.
ID: 2497700 • Letter: M
Question
Mike's Battery Company has two service departments, Maintenance and Personnel. Maintenance Department costs of $320,000 are allocated on the basis of budgeted maintenance-hours. Personnel Department costs of $80,000 are allocated based on the number of employees. The costs of operating departments A and B are $160,000 and $240,000, respectively. Data on budgeted maintenance-hours and number of employees are as follows: Using the direct method, what amount of Maintenance Department costs will be allocated to Department B?
Maintenance Dept Personnel Dept A B
Budgeted costs $320,000 $80,000 $160,000 $240,000
Budgeted maintenance hours NA 800 960 640
Number of employees 40 NA 160 480
Explanation / Answer
Maintenance Department costs of $320,000 are allocated on the basis of budgeted maintenance-hours.
budgeted maintainence hours A:B = 960:640= 3:2
amount of Maintenance Department costs allocated to Department B= 320000$*2/5= $128,000