A company incurred $40,000 of common fixed costs and $60,000 of common variable costs.These costs are to be allocated to Departments A and B.Data on capacity provided and capacity used are as follows: Assume that both fixed and variable costs are allocated on the basis of capacity used.The fixed and variable costs allocated to Department A are

Question

A company incurred $40,000 of common fixed costs and $60,000 of common variable costs.These costs are to be allocated to Departments A and B.Data on capacity provided and capacity used are as follows:

Assume that both fixed and variable costs are allocated on the basis of capacity used.The fixed and variable costs allocated to Department A are

Quizplus · Accepted Answer

To allocate the fixed costs, we need to divide the total fixed costs ($40,000) by the total capacity provided (200,000 machine hours), which gives us a fixed cost rate of $0.20 per machine hour.

To allocate the variable costs, we need to divide the total variable costs ($60,000) by the total capacity used (150,000 machine hours), which gives us a variable cost rate of $0.40 per machine hour.

To allocate the costs to Department A, we need to multiply the fixed cost rate and variable cost rate by the machine hours used by Department A (80,000 machine hours):

Fixed costs allocated to Department A = $0.20 per machine hour x 80,000 machine hours = $16,000

Variable costs allocated to Department A = $0.40 per machine hour x 80,000 machine hours = $32,000

Total costs allocated to Department A = $16,000 + $32,000 = $48,000

Therefore, the correct answer is D) $20,000 $30,000.

A Company Incurred $40,000 of Common Fixed Costs and $60,000