Figure 7-6 Golden Leaves 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:
Refer to Figure 7-6. Using the direct method, the cost of the Personnel Department allocated to Department P1 is

Question

Figure 7-6 Golden Leaves 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:
 Refer to Figure 7-6. Using the direct method, the cost of the Personnel Department allocated to Department P1 is

Quizplus · Accepted Answer

Using the direct method, the Personnel Department costs are allocated based on the number of employees in each department. The Personnel Department costs of $4,500 are divided by the total number of employees in the company, which is 30 (10 in P1 and 20 in P2). This gives a rate of $150 per employee.

To allocate the cost of the Personnel Department to Department P1, we need to know the number of employees in P1. From the table, we can see that there are 6 employees in P1. Multiplying the rate of $150 per employee by the number of employees in P1 (6) gives us the cost of the Personnel Department allocated to P1, which is $900.

Therefore, the cost of the Personnel Department allocated to Department P1 using the direct method is $2,250 ($900 + direct costs of $9,000).

Figure 7-6 Golden Leaves Company Has Two Support Departments, Maintenance