Henderson Industrial Products uses a centralized service department for procurement of raw materials, servicing all three of its divisionsConstruction, Manufacturing, and Military. The total monthly costs of the procurement department are $480,000. Of these costs, 80% are traceable to the divisions, and 20% are considered untraceable. Henderson has decided to assign the traceable costs to the divisions based on number of purchase orders processed. Below is a list of the purchase orders per division.
When Henderson calculates a rate per purchase order, that rate should be calculated on the basis of the full cost of the procurement department.

Question

Henderson Industrial Products uses a centralized service department for procurement of raw materials, servicing all three of its divisionsConstruction, Manufacturing, and Military. The total monthly costs of the procurement department are $480,000. Of these costs, 80% are traceable to the divisions, and 20% are considered untraceable. Henderson has decided to assign the traceable costs to the divisions based on number of purchase orders processed. Below is a list of the purchase orders per division.
  When Henderson calculates a rate per purchase order, that rate should be calculated on the basis of the full cost of the procurement department.

Quizplus · Accepted Answer

The question states that the traceable costs should be assigned to the divisions based on the number of purchase orders processed, not the full cost of the procurement department. Therefore, the rate per purchase order should only be based on the traceable costs, not the full cost.

Henderson Industrial Products Uses a Centralized Service Department for Procurement