Newton Company has two support departments, Maintenance Department (MD) and Personnel Department (PD), and two producing departments, P1 and P2. The Maintenance Department costs of $120,000 are allocated on the basis of standard service hours used. The Personnel Department costs of $18,000 are allocated on the basis of number of employees. The direct costs of Departments P1 and P2 are $36,000 and $60,000, respectively.
Data on standard service hours and number of employees are as follows:
$$\begin{array} { l c c c c }
& \text { Maint. } & \text { Person. } & \text { Dept. } & \text { Dept. } \
& \text { Dept. } & \text { Dept. } & \text { P1 } & \text { p2 } \
\text { Standard service hours used } & 400 & 200 & 1,200 & 600 \
\text { Number of emplayes }& 20 & 40 & 180 & 180 \
\text { Direct labour hours } & 200 & 200 & 1,000 & 1,000
\end{array}$$

-Refer to the figure.What are the total overhead costs associated with P2 after allocating the Maintenance and Personnel Departments using the direct method?

Question

Newton Company has two support departments, Maintenance Department (MD) and Personnel Department (PD), and two producing departments, P1 and P2. The Maintenance Department costs of $120,000 are allocated on the basis of standard service hours used. The Personnel Department costs of $18,000 are allocated on the basis of number of employees. The direct costs of Departments P1 and P2 are $36,000 and $60,000, respectively.
Data on standard service hours and number of employees are as follows:
$$\begin{array} { l c c c c } 
& \text { Maint. } & \text { Person. } & \text { Dept. } & \text { Dept. } \
& \text { Dept. } & \text { Dept. } & \text { P1 } & \text { p2 } \
\text { Standard service hours used }  & 400 & 200 & 1,200 & 600 \
\text { Number of emplayes }& 20 & 40 & 180 & 180 \
\text { Direct labour hours } & 200 & 200 & 1,000 & 1,000
\end{array}$$

-Refer to the figure.What are the total overhead costs associated with P2 after allocating the Maintenance and Personnel Departments using the direct method?

Quizplus · Accepted Answer

First, allocate the Maintenance Department (MD) costs:- Total standard service hours = 400 (MD) + 200 (PD) + 1,200 (P1) + 600 (P2) = 2,400 hours.- MD costs allocated to P2 = ($120,000 / 2,400 hours) * 600 hours = $30,000.Next, allocate the Personnel Department (PD) costs:- Total number of employees = 20 (MD) + 40 (PD) + 180 (P1) + 180 (P2) = 420 employees.- PD costs allocated to P2 = ($18,000 / 420 employees) * 180 employees = $7,714.29 (approximated for calculation purposes).Total overhead costs for P2 after allocation:- Direct costs of P2 = $60,000.- MD costs allocated to P2 = $30,000.- PD costs allocated to P2 = $7,714.29.Total = $60,000 + $30,000 + $7,714.29 = $97,714.29. However, since this specific total is not an option and rounding may affect the final answer, we need to reevaluate the calculation for PD costs allocation, ensuring accuracy and adherence to the provided options.Given the discrepancy in the PD allocation calculation and considering the options provided, the correct approach should involve a precise allocation based on the given data, ensuring no rounding errors influence the final selection. The correct answer should reflect the total overhead costs for P2 after accurately allocating both the Maintenance and Personnel Department costs, considering the direct costs of P2 as well. The correct calculation should align with the options provided, indicating a potential reevaluation of the PD cost allocation or an error in the initial calculation process.

Newton Company Has Two Support Departments, Maintenance Department (MD) and Personnel