Chambers, Inc. has two support departments (utilities and computer) and two operating departments (A and B). The following data are given: If the direct method is used, how much computer cost would be allocated to operating department B?
A) $11,250
B) $25,667
C) $26,471
D) $41,250

Question

Chambers, Inc. has two support departments (utilities and computer) and two operating departments (A and B). The following data are given:  If the direct method is used, how much computer cost would be allocated to operating department B?
A) $11,250 
B) $25,667 
C) $26,471 
D) $41,250

Quizplus · Accepted Answer

Under the direct method, only the costs of support departments are allocated to operating departments. The computer department cost would be allocated only to the operating department that benefits from it. Using the formula for direct method allocation, the computer department cost of $106,471 ($70,000 + $36,471) would be allocated based on the usage of the two operating departments. Department A used 60% of the computer department cost and Department B used 40%, resulting in an allocation of $64,082 to Department A ($106,471 x 60%) and $42,388 to Department B ($106,471 x 40%). Therefore, the answer is C.