Medusa Company allocates costs from the payroll department (S1) and the maintena

Question

Medusa Company allocates costs from the payroll department (S1) and the maintenance department (S2) to the molding (P1), finishing (P2), and packaging (P3) departments. Payroll department costs are allocated based on the number of employees in the department and maintenance department costs are allocated based on the number of square feet which the production department occupies within the factory. Information about the departments is presented below:

Medusa uses the direct method to allocate costs. Round all answers to the nearest dollar.  
What amount of the payroll department costs will be allocated to the molding department?

Number of Number of Square Department Costs Employees Feet Occupied Payroll (S1) $136,000 2 2,000 Maintenance (S2) $220,000 8 64,000 Molding (P1) 70 100,000 Finishing (P2) 44 60,000 Packaging (P3) 22 40,000

Explanation / Answer

Number of Number of Square Department Costs Employees allocation in ratio of employees Payroll allocation Feet Occupied allocation in ratio of area occupied Maintenance cost allocation Payroll (S1) $136,000 2 2,000 Maintenance (S2) $220,000 8 64,000 Molding (P1) 70 51% $ 70,000.00 100,000 50% $110,000 Finishing (P2) 44 32% $ 44,000.00 60,000 30% $66,000 Packaging (P3) 22 16% $ 22,000.00 40,000 20% $44,000 Answer $ 70,000

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