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 are the total overhead costs associated with P2 after allocating the Maintenance and Personnel Departments using the direct method?

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 are the total overhead costs associated with P2 after allocating the Maintenance and Personnel Departments using the direct method?

Quizplus · Accepted Answer

Using the direct method, we allocate the Maintenance Department costs and Personnel Department costs directly to the producing departments based on their respective direct costs. 
Total overhead cost associated with P2 = Direct cost of P2 + Allocated Maintenance costs + Allocated Personnel costs 
= $15,000 + 0 (since Maintenance costs are not allocated based on direct method) + ($4,500 * (90/150)) 
= $15,000 + $2,700 
= $17,700 
Therefore, the correct answer is B) $27,250, which is the total overhead cost associated with both producing departments after allocating the Maintenance and Personnel Departments using the direct method.

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