Question
The Power and Maintenance Departments of a manufacturing company are support departments that provide support to each other as well as to the organizations two
The Power and Maintenance Departments of a manufacturing company are support departments that provide support to each other as well as to the organizations two production departments, Plating and Assembly. The manufacturing company employs separate departmental manufacturing overhead rates for the two production departments requiring the allocation of the support department costs to the two manufacturing departments. Square footage of area served is used to allocate the Maintenance Department costs, and percentage of power usage is used to allocate the Power Department costs. Department costs and operating data are as follows:
Support Departments | Production Departments | |||
Costs: | Power | Maintenance | Plating | Assembly |
Labor | $ 60,000 | $180,000 | ||
Overhead | 1,440,000 | 540,000 | ||
Total costs | $1,500,000 | $720,000 | ||
Operating Data: | ||||
Square feet | 6,000 | 1,500 | 6,000 | 24,000 |
Percent of usage: | ||||
Long-run capacity | 5% | 60% | 35% | |
Expected actual use | 4% | 70% | 26% |
Assume that the manufacturing company employs the step-down allocation method to allocate support department costs. If it allocates the cost of the Maintenance Department first, then the amount of the Maintenance Departments costs that are directly allocated to the Plating Department would be
$144,000
$120,000
$115,200
$90,000
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