Jerome Company has two service departments,Maintenance and Human Resources.Jerome Company also has two production departments,Mixing and Finishing.Maintenance costs are allocated based on square footage while Human Resource costs are allocated based on number of employees.The following information has been gathered for the current year:
$\begin{array}{lllll}&&\text { Human }\
&\text { Maintenance } &\text { Resources } & \text { Mixing } & \text { Finishing }\
\text { Direct costs } & \$ 126,000 & \$ 84,000 & \$ 105,000 & \$ 175,000 \
\text { Square footage } & 800 & 400 & 1,600 & 1,200 \
\text { Number of employees } & 8 & 12 & 24 & 32
\end{array}$
If the direct method is used to allocate service department costs,then the total cost of the Finishing Department after allocation would be ________.
A) $48,000
B) $102,000
C) $175,000
D) $277,000

Question

Quizplus · Accepted Answer

The total cost of the Finishing Department after allocation includes its direct costs plus the allocated costs from Maintenance and Human Resources. Maintenance costs are allocated based on square footage, and Human Resources costs are based on the number of employees. For Maintenance ($126,000 total), the allocation to Finishing is based on its square footage proportion:$$ \frac{1,200}{(1,600 + 1,200)} = \frac{1,200}{2,800} = \frac{3}{7} $$So, the allocation from Maintenance to Finishing is:$$ \frac{3}{7} \times \$126,000 = \$54,000 $$For Human Resources ($84,000 total), the allocation to Finishing is based on the number of employees:$$ \frac{32}{(24 + 32)} = \frac{32}{56} = \frac{4}{7} $$So, the allocation from Human Resources to Finishing is:$$ \frac{4}{7} \times \$84,000 = \$48,000 $$Adding these allocations to the direct costs of the Finishing Department:$$ \$175,000 (Direct Costs) + \$54,000 (Maintenance) + \$48,000 (Human Resources) = \$277,000 $$

Jerome Company Has Two Service Departments,Maintenance and Human Resources If the Direct Method Is Used to Allocate Service Department