PIR Corporation has 2 support departments and 2 operating departments. Number of employees is used as an allocation base for personnel support costs, and square metres are used for janitorial support costs. A breakdown of their costs, along with other operating information, is shown below for a recent accounting period: Support Departments Operating Departments
Personnel Janitorial Assembly Finishing
Direct Costs:
Fixed $ 8,000 $ 4,000 $ 3,000 $ 4,000
Variable 6,000 10,000 12,000 6,000
Total $14,000 $14,000 $15,000 $10,000
Number of employees 10 15 30 20
Square metres 3,000 5,000 10,000 10,000
If PIR uses single-rate allocation and the direct method, the total cost (including support department costs)for Product Assembly will be:
A)$14,000
B)$28,000
C)$30,400
D)None of the above

Question

Quizplus · Accepted Answer

Using the single-rate allocation method and the direct method, we first need to determine the allocation rate for each support department.

For personnel support, the allocation rate would be:
Total personnel support costs / Total number of employees = $14,000 / 75 employees = $186.67 per employee

For janitorial support, the allocation rate would be:
Total janitorial support costs / Total square metres = $14,000 / 23,000 square metres = $0.61 per square metre

Next, we allocate the support department costs to the operating departments using the allocation rates:

For the assembly department: 
Personnel support costs = 30 employees x $186.67 per employee = $5,600 
Janitorial support costs = 10,000 square metres x $0.61 per square metre = $6,100

Total assembly department costs: 
Direct costs + Personnel support costs + Janitorial support costs
= $3,000 + $5,600 + $6,100 = $14,700

Therefore, the total cost (including support department costs) for the product assembly is $14,700, which is option C.

PIR Corporation Has 2 Support Departments and 2 Operating Departments