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. What is the combined total department costs for the producing departments after allocation of the support departments?

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. What is the combined total department costs for the producing departments after allocation of the support departments?

Quizplus · Accepted Answer

The allocation of Maintenance Department cost is based on standard service used, which means it should be allocated based on the standard service hours consumed by each department. 
Therefore, the Maintenance Department cost of $30,000 should be allocated as follows:
- P1: (1,000/6,000) * $30,000 = $5,000
- P2: (5,000/6,000) * $30,000 = $25,000
The allocation of Personnel Department cost is based on the number of employees in each department. Therefore, the Personnel Department cost of $4,500 should be allocated as follows:
- P1: (10/30) * $4,500 = $1,500
- P2: (20/30) * $4,500 = $3,000
The total department costs for the producing departments after allocation of the support departments are:
- P1: $9,000 + $5,000 + $1,500 = $15,500
- P2: $15,000 + $25,000 + $3,000 = $43,000
Therefore, the combined total department costs for the producing departments after allocation of the support departments are $15,500 + $43,000 = $58,500.

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