Medusa Company allocates costs from the payroll department (S1) and the maintena
ID: 2753711 • Letter: M
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:
Number of Number of Square
Department Costs Employees Feet Occupied
Payroll (S1) $133,000 2 2,000
Maintenance (S2) $220,000 8 64,000
Molding (P1) 66 100,000
Finishing (P2) 42 60,000
Packaging (P3) 19 40,000
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?
Explanation / Answer
Amount of payroll cost to be allocated to Molding department = ($133,000 * 66) / (66+42+19)
= $69,118.11
(The cost will be allocated to each of the three departments based on the number of employees)