Stevens Company has two production departments called Assembly and Finishing.The maintenance department serves both production departments.Maintenance costs are allocated based on labor hours.Budgeted fixed costs for the maintenance department are $40,000.Budgeted variable costs for the maintenance department are $4.00 per labor hour.Other relevant data follow:
$\begin{array}{ll}&\text { Assembly }&\text { Finishing }\
\text { Capacity available }&\text { 18,000 labor hours } & 12,000 \text { labor hour: } \
\text { Capacity used }&\text { 15,000 labor hours } & 9,000 \text { labor hours }
\end{array}$
Actual maintenance department costs:
$\begin{array}{ll}
\text { Fixed } & \$ 36,000 \
\text { Variable } & \$ 100,000
\end{array}$
The amount of fixed maintenance department costs allocated to the Assembly Department should be ________.
A) $16,000
B) $22,500
C) $24,000
D) $25,000

Question

Quizplus · Accepted Answer

The fixed maintenance department costs should be allocated based on the capacity used by each department. The total capacity used is 15,000 (Assembly) + 9,000 (Finishing) = 24,000 labor hours. The Assembly Department used 15,000 out of 24,000 total labor hours, which is 62.5% of the total. Therefore, the Assembly Department should be allocated 62.5% of the $40,000 budgeted fixed costs, which equals $25,000. However, the actual fixed costs were $36,000, not $40,000. So, the calculation should be based on the actual fixed costs: 62.5% of $36,000 = $22,500. The correct calculation for the allocation based on the provided information should indeed be based on the budgeted amount, not the actual, leading to the correct allocation being 62.5% of $40,000 = $25,000. My explanation mistakenly referenced the actual costs for calculation, which was not asked for in the question. The correct approach is to allocate the budgeted fixed costs, not the actual fixed costs. Therefore, the correct answer is based on the budgeted costs, which I incorrectly calculated. The correct allocation method involves the budgeted costs, and the calculation error was in the interpretation of the question's requirements.

Stevens Company Has Two Production Departments Called Assembly and Finishing