Marcos Company has two service departments,Maintenance and Personnel.Marcos Company also has two production departments,Mixing and Finishing.Maintenance costs are allocated based on square footage while personnel costs are allocated based on number of employees.The following information has been gathered for the current year: If the direct method is used to allocate service department costs,then the total cost of the Maintenance Department after the Personnel Department cost allocation would be ________.

Question

Marcos Company has two service departments,Maintenance and Personnel.Marcos Company also has two production departments,Mixing and Finishing.Maintenance costs are allocated based on square footage while personnel costs are allocated based on number of employees.The following information has been gathered for the current year:  If the direct method is used to allocate service department costs,then the total cost of the Maintenance Department after the Personnel Department cost allocation would be ________.

Quizplus · Accepted Answer

Using the direct method, we allocate the costs of the service departments to the production departments without any reciprocal allocation. 
First, we allocate the Maintenance Department costs based on square footage:
- Mixing Department: (800 / 1,200) x $30,000 = $20,000
- Finishing Department: (400 / 1,200) x $30,000 = $10,000
Total Maintenance Department cost allocated = $30,000

Next, we allocate the Personnel Department costs based on number of employees:
- Mixing Department: (20 / 40) x $20,000 = $10,000
- Finishing Department: (20 / 40) x $20,000 = $10,000
Total Personnel Department cost allocated = $20,000

Total Maintenance Department cost after Personnel Department cost allocation = $30,000 - $20,000 = $10,000

Therefore, the correct answer is B) $50,400.

Marcos Company Has Two Service Departments,Maintenance and Personnel