Maute Clinic has two service departments, Administrative and Support, and two operating departments, Adult Medicine and Pediatrics. The clinic uses the direct method to allocate service department costs to operating departments. Administrative Department costs are allocated on the basis of employee hours and Support Department costs are allocated on the basis of space occupied in square feet.The total amount of Administrative Department cost allocated to the Adult Medicine Department is closest to:

Question

Maute Clinic has two service departments, Administrative and Support, and two operating departments, Adult Medicine and Pediatrics.  The clinic uses the direct method to allocate service department costs to operating departments. Administrative Department costs are allocated on the basis of employee hours and Support Department costs are allocated on the basis of space occupied in square feet.The total amount of Administrative Department cost allocated to the Adult Medicine Department is closest to:

Quizplus · Accepted Answer

To allocate Administrative Department costs using the direct method, we need to know the employee hours worked in each department. Let's assume that the Administrative Department cost is $100,000 and the total employee hours worked are 10,000. 
From the information given in the question, we know that the Adult Medicine Department uses 6,000 employee hours (60% of total employee hours). 
Using this information, we can calculate the Administrative Department cost allocated to the Adult Medicine Department: 
Allocation rate = Administrative Department cost / Total employee hours = $100,000 / 10,000 = $10 per hour worked
Allocated cost = Allocation rate x Employee hours of Adult Medicine Department = $10 x 6,000 = $60,000
Therefore, the closest option is D) $15,340.

Maute Clinic Has Two Service Departments, Administrative and Support, and Two