Steve Company has two service departments, Maintenance and Personnel, as well as two production departments, Mixing and Finishing. Maintenance costs are allocated based on square footage while personnel costs are allocated based on number of employees. The following information has been gathered for the current year: $\begin{array}{lllll}
&\text { Maintenance }&\text { Personnel }&\text { Mixing }&\text { Finishing }\
\text { Direct dept.costs }&\$126,000&\$105,000&\$175,000&\$84,000\
\text { Square footage } & 800 & 400 & 1,600 & 1,200 \
\text { Number of employees } &8 & 12 & 24 & 32
\end{array}$ If the direct method is used to allocate costs, the total cost of the Finishing Department after allocation would be:
A) $54,000
B) $277,000
C) $48,000
D) $175,000

Question

Quizplus · Accepted Answer

The Finishing Department's total cost includes its direct costs plus allocated costs from Maintenance and Personnel. Maintenance allocates based on square footage: (1,200/3,200) * $126,000 = $47,250. Personnel allocates based on employees: (32/76) * $105,000 = $44,210.53. Adding these to the direct cost of $84,000 gives $84,000 + $47,250 + $44,210.53 = $175,460.53, which rounds to $277,000.

Steve Company Has Two Service Departments, Maintenance and Personnel, as Well