The fixed costs of Baxter Company's personnel department are allocated to operating departments on the basis of direct labor-hours. The following data have been provided: The fixed costs of the personnel department are budgeted at $56,000 per year and are incurred in order to support long-run average requirements. How much of this fixed cost should be charged to Operating Department X at the end of the year for performance evaluation purposes?
A)$35,000
B)$33,600
C)$52,500
D)$22,400

Question

The fixed costs of Baxter Company's personnel department are allocated to operating departments on the basis of direct labor-hours. The following data have been provided:  The fixed costs of the personnel department are budgeted at $56,000 per year and are incurred in order to support long-run average requirements. How much of this fixed cost should be charged to Operating Department X at the end of the year for performance evaluation purposes?
A)$35,000 
B)$33,600 
C)$52,500 
D)$22,400

Quizplus · Accepted Answer

To calculate the fixed cost allocation to Operating Department X, we need to multiply the direct labor-hours of X by the predetermined fixed cost per hour ($56,000/28,000 direct labor-hours in total). Hence, the allocation of the fixed cost to Department X is: 
8,000 hours (Direct labor) × $2 (Fixed cost rate per direct labor hour) = $16,000.
Therefore, option B is the correct answer as it represents the allocation of the fixed cost of $56,000 to Operating Department X.

The Fixed Costs of Baxter Company's Personnel Department Are Allocated