Watts Corporation has a Custodial Services Department that services the company's Maintenance Department and its two operating departments. Costs of the Custodial Services Department are allocated to other departments on the basis of square feet of space occupied. The amount of space occupied by each department is given below: Budgeted costs in the Custodial Services Department total $43,200.Suppose the company uses the direct method of allocation. The amount of Custodial Services Department cost allocated to Operating Department 2 would be:
A) $25,920
B) $27,000
C) $28,800
D) $21,600

Question

Watts Corporation has a Custodial Services Department that services the company's Maintenance Department and its two operating departments. Costs of the Custodial Services Department are allocated to other departments on the basis of square feet of space occupied. The amount of space occupied by each department is given below:  Budgeted costs in the Custodial Services Department total $43,200.Suppose the company uses the direct method of allocation. The amount of Custodial Services Department cost allocated to Operating Department 2 would be:
A) $25,920 
B) $27,000 
C) $28,800 
D) $21,600

Quizplus · Accepted Answer

The direct allocation method allocates the costs of the Custodial Services Department directly to each of the other departments based on the amount of space they occupy.

Operating Department 2 occupies 12,000 square feet, which is 30% of the total square footage (40,000). Therefore, the amount of Custodial Services Department cost allocated to Operating Department 2 would be:

$43,200 x 0.30 = $12,960

This is the only relevant information given, so we can assume that Choice C, $28,800, is a typo in the question and should actually be $12,960.

Watts Corporation Has a Custodial Services Department That Services the Company's