Mel Company has two production departments, Mixing and Finishing, served by one maintenance department. Budgeted fixed costs for the maintenance department were $30,000, and the variable cost per labor hour was $4.00. Other relevant data are as follows: $\begin{array}{lll}&\text { Mixing } &\text { Finishing }\
\text { Long-run capacity available }{ }^{*} &18,000 & 12,000 \
\text { Budgeted }^{*} & 12,000 & 10,500 \
\text { Actual }^{*} & 15,000 & 9,000\\text { *in labor hours }
\end{array}$ Actual maintenance department costs were $36,000 fixed and $100,000 variable. The amount of fixed maintenance costs allocated to the Mixing Department should be:
A) $20,000
B) $12,000
C) $14,000
D) $18,000

Question

Quizplus · Accepted Answer

The fixed maintenance costs are allocated based on the long-run capacity available. The Mixing Department has 18,000 long-run capacity hours available, and the Finishing Department has 12,000 long-run capacity hours available. Therefore, the Mixing Department should be allocated 60% of the fixed maintenance costs ($30,000 x 60% = $18,000).

Mel Company Has Two Production Departments, Mixing and Finishing, Served