Question

Hanung Corp has two service departments, Maintenance and Personnel. Maintenance Department costs of $360,000 are allocated on the basis of budgeted maintenance-hours. Personnel Department costs of $110,000 are allocated based on the number of employees. The costs of operating departments A and B are $188,000 and $282,000, respectively. Data on budgeted maintenance-hours and number of employees are as follows:

Production

Support Departments Departments

Maintenance Department

Personnel Department

A

B

Budgeted costs

$360,000

$110,000

$188,000

$282,000

Budgeted maintenance-hours

NA

880

1230

680

Number of employees

60

NA

290

630

Using the direct method, what amount of Maintenance Department costs will be allocated to Department B? (Do not round any intermediary calculations.)

Select one:

a. $100,398

b. $128,168

c. $87,742

d. $167,330

Answer 1

Option (b) : $128,168

Explanation:

As per the data given in the question,

Cost of maintenance department = $360,000

In direct method, cost of Maintenance department will be allocated to Department A and Department B their Budgeted maintenance hours' ratio which means 1230 : 680

So, Maintenance department costs allocated to Department B

= Maintenance department cost × Department B budgeted maintenance hours ÷ total budgeted maintenance hours

= $360,000 × 680 ÷ 1910

= $128,167.54

= $128,168

We simply applied the above formula