Morton Auto Sales has three producing departments: new car sales, used car sales, and service. The service department provides service to both outside customers and to the new and used car departments. Morton wants to charge the new and used car departments for their use of the service department. It seems fair to charge each department for the cost of actual direct materials used (e.g., oil, engine parts) and to develop a single charging rate for direct labor and overhead.

Assume the following budgeted amounts for the year:

$360,000 24,000

$240,000 lop8