The Computer Department in a large company provides services to many departments.The cost driver for costs in the Computer Department is the number of computer hours.When allocating fixed costs of the Computer Department to a user department such as Department A,which of the following formulas is used?
A) budgeted fixed cost × (budgeted hours to be used by Department A/total available capacity hours of Computer Department)
B) budgeted fixed cost × (actual hours used by Department A/total available capacity hours of Computer Department)
C) actual fixed cost × (budgeted hours to be used by Department A/total available capacity hours of Computer Department)
D) actual fixed cost × (actual hours used by Department A/total available capacity hours of Computer Department)

Question

Quizplus · Accepted Answer

The formula for allocating fixed costs to Department A would use the budgeted fixed cost (as it is a predetermined cost) and the budgeted hours to be used by Department A. Hence, choice A is the best option. Choice B uses actual hours used, which may not be representative of the planned usage, while choice C uses actual fixed cost, which may not reflect the planned allocation. Lastly, choice D uses actual hours used and actual fixed cost, which may lead to inaccurate allocation.

The Computer Department in a Large Company Provides Services to Many