Figure 7-6 Oaks 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 Oaks 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

The direct method allocates support department costs only to producing departments based on the direct usage of support services. Using the direct method, the cost of Personnel Department allocated to P1 would be $2,250 ($4,500 x 0.5 employees in P1). The Maintenance Department cost is not relevant to the question since it is not being allocated to the producing departments using the direct method.

Figure 7-6 Oaks Company Has Two Support Departments, Maintenance Department