The accountant for Milton, Inc. is preparing the budgets for operating department support service costs. Maintenance costs are allocated based on square feet, and cafeteria costs are allocated based on number of employees. The following data have been collected: Support Departments Operating Departments
Maintenance Cafeteria Cutting Packaging
Direct costs $50,000 $45,000 $275,000 $300,000
Number of employees 15 10 150 250
Square metres 1,500 2,000 3,500 4,000
If the direct method is used, the total cost (including allocations)for the packaging department will be:
A)$26,667
B)$355,250
C)$54,792
D)$354,792

Question

Quizplus · Accepted Answer

According to the direct method, support department costs are not allocated to other support departments but allocated only to operating departments based on the usage of the support services. 
Using the direct method, the total cost for the packaging department will be calculated as follows:

Direct costs for packaging department = $300,000
Allocated maintenance costs = (4,000 sq. m / 9,000 sq. m) x $50,000 = $22,222
Allocated cafeteria costs = (250 employees / 425 employees) x $45,000 = $26,471

Total cost for packaging department = Direct costs + Allocated maintenance costs + Allocated cafeteria costs
= $300,000 + $22,222 + $26,471
= $348,693

Therefore, the best choice is D) $354,792.

The Accountant for Milton, Inc