San Juan Minerals (SJM) has two service departments and two operating departments. Operating data for these departments for last year are as follows: Costs of the Maintenance Department are allocated on the basis of machine hours. Cafeteria costs are allocated on the basis of number of employees. SJM does not distinguish between variable and fixed overhead costs.Assuming that SJM allocates service department costs using the direct method, the total cost allocated from Cafeteria to Mining would be closest to:

Question

San Juan Minerals (SJM) has two service departments and two operating departments. Operating data for these departments for last year are as follows:  Costs of the Maintenance Department are allocated on the basis of machine hours. Cafeteria costs are allocated on the basis of number of employees. SJM does not distinguish between variable and fixed overhead costs.Assuming that SJM allocates service department costs using the direct method, the total cost allocated from Cafeteria to Mining would be closest to:

Quizplus · Accepted Answer

Using the direct method, we allocate the costs of the service departments directly to the operating departments.

First, we need to allocate the Maintenance department costs to the operating departments:

Maintenance department cost allocated to Mining = [(10,000 machine hours for Mining / 25,000 total machine hours) * $50,000 total Maintenance cost] = $20,000
Maintenance department cost allocated to Smelting = [(15,000 machine hours for Smelting / 25,000 total machine hours) * $50,000 total Maintenance cost] = $30,000

Next, we need to allocate the Cafeteria costs to the operating departments:

Cafeteria department cost allocated to Mining = [(100 employees for Mining / 250 total employees) * $40,000 total Cafeteria cost] = $16,000
Cafeteria department cost allocated to Smelting = [(150 employees for Smelting / 250 total employees) * $40,000 total Cafeteria cost] = $24,000

Therefore, the total cost allocated from Cafeteria to Mining is $16,000, and the total cost allocated from both service departments to Mining is $36,000 ($20,000 from Maintenance and $16,000 from Cafeteria).

Hence, the closest answer is (C) $23,684, which is the total cost allocated from both service departments (Maintenance and Cafeteria) to Smelting.

San Juan Minerals (SJM) Has Two Service Departments and Two