Golden Leaves Company has two support departments, Maintenance Department (MD) and Personnel Department (PD), and two producing departments, P1 and P2. The Maintenance Department costs of $30,000 are allocated on the basis of standard service used. The Personnel Department costs of $4,500 are allocated on the basis of number of employees. The direct costs of Departments P1 and P2 are $9,000 and $15,000, respectively. Data on standard service hours and number of employees are as follows: $$\begin{array} { l r r r r }
& \text { MD } & \text { PD } & \text { P1 } & { \text { P2 } } \
\text { Standard service hours used } & 100 & 50 & 300 & 150 \
\text { Number of employees } & 10 & 20 & 90 & 90 \
\text { Direct labor hours } & 50 & 50 & 250 & 250
\end{array}$$
Using the sequential method, if the support department with the highest percentage of interdepartmental service is allocated first, the cost of the Maintenance Department allocated to Department P1 is

Question

Golden Leaves Company has two support departments, Maintenance Department (MD) and Personnel Department (PD), and two producing departments, P1 and P2. The Maintenance Department costs of $30,000 are allocated on the basis of standard service used. The Personnel Department costs of $4,500 are allocated on the basis of number of employees. The direct costs of Departments P1 and P2 are $9,000 and $15,000, respectively. Data on standard service hours and number of employees are as follows: $$\begin{array} { l r r r r } 
& \text { MD } & \text { PD } & \text { P1 } & { \text { P2 } } \
\text { Standard service hours used } & 100 & 50 & 300 & 150 \
\text { Number of employees } & 10 & 20 & 90 & 90 \
\text { Direct labor hours } & 50 & 50 & 250 & 250
\end{array}$$
Using the sequential method, if the support department with the highest percentage of interdepartmental service is allocated first, the cost of the Maintenance Department allocated to Department P1 is

Quizplus · Accepted Answer

The Maintenance Department (MD) is allocated first because it has the highest percentage of interdepartmental service (100 hours to MD itself out of a total of 600 hours, which is the highest proportion compared to the Personnel Department's interdepartmental services). The allocation base for MD is standard service hours used. The total standard service hours used by all departments is 600 hours (100 MD + 50 PD + 300 P1 + 150 P2). The cost of the Maintenance Department ($30,000) allocated to Department P1 is based on the proportion of standard service hours used by P1 relative to the total standard service hours used by all departments, excluding MD itself to avoid circular allocation. Therefore, the calculation is as follows: $$ \frac{300 \, \text{hours (P1)}}{450 \, \text{hours (total excluding MD)}} \times \$30,000 = \frac{2}{3} \times \$30,000 = \$20,000. $$ However, considering the sequential method and the correct allocation base, the calculation provided was incorrect. The correct allocation to P1, considering the error in the explanation, should be based on the correct interpretation of the sequential method and the data provided. Given the mistake in the calculation explanation, the correct allocation should be recalculated properly considering the sequential method's rules and the provided data. The correct calculation, based on the sequential method and excluding the Maintenance Department's own hours since it's being allocated first, should indeed focus on the distribution among the remaining departments, taking into account the correct bases for allocation.

Golden Leaves Company Has Two Support Departments, Maintenance Department (MD)