The Maryville Construction Company occupies 85,000 square feet for construction of mobile homes.There are two manufacturing departments,finishing and assembly,and four service departments labeled S1,S2,S3,and S4.Information relevant to Maryville is as follows:
$\begin{array}{|l|r|r|r|r|r|r|r|}
\hline \text { Dept } & \text { Area used } & \mathbf{S 1} & \mathbf{S 2} & \mathbf{S 3} & \mathbf{S 4} & \begin{array}{r}
\text { Allocation } \
\text { Finishing }
\end{array} & \text { Assembly } \
\hline S 1 & 17,000 & - & .10 & .20 & - & .20 & .50 \
\hline S 2 & 4,250 & - & - & .30 & .30 & - & .40 \
\hline S 3 & 8,500 & .20 & .20 & - & .30 & .20 & .10 \
\hline S 4 & 4,250 & .30 & .10 & .30 & - & .20 & .10 \
\hline \text { Fin. } & 21,250 & - & - & - & - & - & - \
\hline \text { Asm. } & 29,750 & - & - & - & - & - & - \
\hline
\end{array}$Rent paid for the area used is $720,000.How much rent is allocable to the assembly department using the direct method of allocation?

Question

The Maryville Construction Company occupies 85,000 square feet for construction of mobile homes.There are two manufacturing departments,finishing and assembly,and four service departments labeled S1,S2,S3,and S4.Information relevant to Maryville is as follows: 
$\begin{array}{|l|r|r|r|r|r|r|r|}
\hline \text { Dept } & \text { Area used } & \mathbf{S 1} & \mathbf{S 2} & \mathbf{S 3} & \mathbf{S 4} & \begin{array}{r}
\text { Allocation } \
\text { Finishing }
\end{array} & \text { Assembly } \
\hline S 1 & 17,000 & - & .10 & .20 & - & .20 & .50 \
\hline S 2 & 4,250 & - & - & .30 & .30 & - & .40 \
\hline S 3 & 8,500 & .20 & .20 & - & .30 & .20 & .10 \
\hline S 4 & 4,250 & .30 & .10 & .30 & - & .20 & .10 \
\hline \text { Fin. } & 21,250 & - & - & - & - & - & - \
\hline \text { Asm. } & 29,750 & - & - & - & - & - & - \
\hline
\end{array}$Rent paid for the area used is $720,000.How much rent is allocable to the assembly department using the direct method of allocation?

Quizplus · Accepted Answer

The direct method of allocation allocates costs based on the actual usage of the service departments by the production departments. In this case, the assembly department uses 40% of the total service department costs, so it would be allocated $720,000 * 0.40 = $288,000. However, the assembly department also uses 10% of the finishing department's costs, which were already allocated to the assembly department. Therefore, the total rent allocable to the assembly department is $288,000 + ($21,250 / 85,000 * $720,000 * 0.10) = $332,500.

The Maryville Construction Company Occupies 85,000 Square Feet for Construction