Spirits and More operates two departments, Cutting and Fabrication. Two service departments, maintenance and purchasing, are also included within the company. The operating costs and distribution of each service department's efforts to the other departments is as follows: Using the direct method of allocating support costs, what is the total cost accumulated in the cutting department?
A)$32,877.
B)$80,000.
C)$85,600.
D)$112,877.

Question

Spirits and More operates two departments, Cutting and Fabrication. Two service departments, maintenance and purchasing, are also included within the company. The operating costs and distribution of each service department's efforts to the other departments is as follows:  Using the direct method of allocating support costs, what is the total cost accumulated in the cutting department?
A)$32,877. 
B)$80,000. 
C)$85,600. 
D)$112,877.

Quizplus · Accepted Answer

15% + 50% = 65% 
15% ÷ 65% x $ $87,000 = $20,077 
60% + 15% = 75% 
60% ÷ 75% x $16,000 = $12,800 
$20,077 + $12,800 + $80,000 = $112,877 
Maint Cut % + Maint Fab % = total maint % 
Maint cut % ÷ total maint % x maint costs = maint alloc costs 
Pur cut % + Pur fab % = purch alloc costs 
Pur cut % ÷ purch alloc costs x pur costs = purch alloc costs 
maint alloc costs + purch alloc costs + cut op costs = total cut costs

Spirits and More Operates Two Departments, Cutting and Fabrication