The RAH Manufacturing Company has two service departments: Maintenance and Accou

Question

The RAH Manufacturing Company has two service departments: Maintenance and Accounting. The Maintenance Department's costs of $307,000 are allocated on the basis of machine hours. The Accounting Department's costs of $127,000 are allocated on the basis of the number of employees within a specific department. The direct departmental costs for A and B are $307,000 and $507,000, respectively.

   
What is the Accounting Department's cost allocated to Department B using the direct method?

Explanation / Answer

Under direct method, the Accounting Department's cost will be directly allocated to the departments A and B in the ratio of the employees of department A and B that is in the ratio of 15: 11

The cost of the accounting department that will be allocated to department B = $127000 x [11/(11+15)] = $53731

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