The fixed costs of Black Company's personnel department are allocated to operating departments on the basis of direct labor-hours.The following data have been provided: The fixed costs of the personnel department are budgeted at $56,000 per year and are incurred in order to support long-run average requirements.How much of this fixed cost should be charged to Operating Department X at the end of the year for performance evaluation purposes?

Question

The fixed costs of Black Company's personnel department are allocated to operating departments on the basis of direct labor-hours.The following data have been provided:

The fixed costs of the personnel department are budgeted at $56,000 per year and are incurred in order to support long-run average requirements.How much of this fixed cost should be charged to Operating Department X at the end of the year for performance evaluation purposes?

Quizplus · Accepted Answer

To allocate fixed costs to Operating Department X, we need to determine the direct labor-hours for this department. Let's assume that Operating Department X has 9,000 direct labor-hours for the year.
To calculate the rate per direct labor-hour, we divide the total fixed costs by the total direct labor-hours across all operating departments:
$56,000 / (9,000 + 15,000 + 12,000) = $56,000 / 36,000 = $1.56 per direct labor-hour
Next, we multiply the rate per direct labor-hour by the number of direct labor-hours for Operating Department X:
$1.56 x 9,000 = $14,040
Therefore, the amount of fixed costs that should be charged to Operating Department X for performance evaluation purposes is $14,040 x 2 (to cover the long-run average requirements) = $33,600.

The Fixed Costs of Black Company's Personnel Department Are Allocated