Gandolf Corporation allocates administrative costs on the basis of staff hours. Short-run monthly usage and anticipated long-run monthly usage of staff hours for Operating Departments 1 and 2 follow. $$\begin{array} { l l l l }
& \underline {\text { Dept. 1 }} & \underline {\text { Dept. 2 }} & \underline { \text { Total } } \
\text { Short-run usage (hours) } & 40,000 & 60,000 & 100,000 \
\text { Long-run usage (hours) } & 45,000 & 55,000 & 100,000
\end{array}$$ If Gandolf uses dual-cost accounting procedures and variable administrative costs total $200,000, the amount of variable administrative cost to allocate to Department 1 would be:
A) $80,000.
B) $85,000.
C) $90,000.
D) $100,000.
E) None of the other answers are correct.

Question

Gandolf Corporation allocates administrative costs on the basis of staff hours. Short-run monthly usage and anticipated long-run monthly usage of staff hours for Operating Departments 1 and 2 follow. $$\begin{array} { l l l l } 
&  \underline {\text { Dept. 1 }} &  \underline {\text { Dept. 2 }} & \underline { \text { Total } } \
\text { Short-run usage (hours) } & 40,000 & 60,000 & 100,000 \
\text { Long-run usage (hours) } & 45,000 & 55,000 & 100,000
\end{array}$$ If Gandolf uses dual-cost accounting procedures and variable administrative costs total $200,000, the amount of variable administrative cost to allocate to Department 1 would be:
A) $80,000.
B) $85,000.
C) $90,000.
D) $100,000.
E) None of the other answers are correct.

Quizplus · Accepted Answer

The variable administrative costs are allocated based on short-run usage. Department 1 uses 40,000 hours out of a total of 100,000 hours, so it receives 40% of the $200,000 variable costs, which is $80,000.

Gandolf Corporation Allocates Administrative Costs on the Basis of Staff