Ransall Auto Parts 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 appear below: $\begin{array}{lrrrrr}&\text { Maintenance}&\text { Personnel }&\text {fabrication }&\text {Assembly }&\text {Packaging }\
\text { Cost } & \$ 90,000 & \$ 130,000 & & & \
\text { Machine hours } & & & 12,000 & 30,000 & 18,000 \
\text { Employees } & 4 & 16 & 24 & 30 & 26
\end{array}$ Using the most logical activity base, how much maintenance cost will be allocated to packaging?
A)$3,600
B)$27,000
C)$33,750
D)$30,000

Question

Quizplus · Accepted Answer

The most logical activity base for allocating maintenance costs is machine hours, since maintenance activities are often closely related to the number of machine hours. The total machine hours are 12,000 + 30,000 + 18,000 = 60,000. The packaging department uses 18,000 machine hours, which is 18,000 / 60,000 = 30% of the total. Therefore, 30% of the maintenance cost ($90,000) will be allocated to packaging, which is $90,000 * 30% = $27,000.

Ransall Auto Parts Has Two Service Departments-Maintenance and Personnel, and Three