Oaks Company has two support departments, Maintenance Department (MD) and Personnel Department (PD), and two producing departments, P1 and P2. The Maintenance Department costs of $30,000 are allocated on the basis of standard service used. The Personnel Department costs of $4,500 are allocated on the basis of number of employees. The direct costs of Departments P1 and P2 are $9,000 and $15,000, respectively.
Data on standard service hours and number of employees are as follows:
$\begin{array}{lrrr}
&\text { MD}&\text { PD}&\text { P1}&\text { P2}\
\text { Standard service hours used } & 100 & 50 & 300 &150\
\text { Number of employees } & 10 & 20 & 90&90\\
\text { Direst lahour houre }&50&50&250&250
\end{array}$

-Refer to the figure.Using the direct method,what is the cost of the Maintenance Department allocated to Department P1?

Question

Oaks Company has two support departments, Maintenance Department (MD) and Personnel Department (PD), and two producing departments, P1 and P2. The Maintenance Department costs of $30,000 are allocated on the basis of standard service used. The Personnel Department costs of $4,500 are allocated on the basis of number of employees. The direct costs of Departments P1 and P2 are $9,000 and $15,000, respectively.
Data on standard service hours and number of employees are as follows:
$\begin{array}{lrrr}
&\text { MD}&\text { PD}&\text { P1}&\text { P2}\
\text { Standard service hours used } & 100 & 50 & 300 &150\
\text { Number of employees } & 10 & 20 & 90&90\\
\text { Direst lahour houre }&50&50&250&250
\end{array}$

-Refer to the figure.Using the direct method,what is the cost of the Maintenance Department allocated to Department P1?

Quizplus · Accepted Answer

Using the direct method, we allocate the Maintenance Department cost based on the number of service hours used by each department. 
Total number of service hours = 40,000 + 20,000 = 60,000 
Allocation Rate = Total Maintenance Department Cost / Total Service Hours 
= $120,000 / 60,000 = $2 per service hour 
Department P1 has used 10,000 service hours (from the table) 
Allocation of Maintenance Department Cost to Department P1 = 10,000 x $2 = $20,000 
Therefore, the correct answer is choice C, $20,000.

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