The cost of the Maintenance Department at Forest Manufacturing has always been c

Question

The cost of the Maintenance Department at Forest Manufacturing has always been charged to the production departments based on the number of employees. Recently, an activity analysis of possible cost drivers was performed which indicated that the square feet of space may also be a predictor of costs to be assigned to each production department. The Maintenance Department cost is $500,000. The following data is available:
Production Departments
Dept. A Dept. B Dept. C
Number of Employees 300 25 50
Square Feet of Space 5,000 10,000 25,000


Determine the amount of the maintenance department cost that should be allocated to Department X if the cost driver used is: (A) number of employees and (B) square feet of space.

Does the choice of the cost driver affect the costs assigned to each department?

Explanation / Answer

Yes,the choice of cost driver affect the costs assigned to each department.Please check below to understand the same.

COST DRIVERS DEPARTMENT A DEPARTMENT B DEPARTMENT C TOTAL Department Cost Department cost per employee/per sq.ft Employees 300 25 50 375 500000 1333.333333 Square feet space 5000 10000 25000 40000 500000 12.5 Allocation of Maintenance cost DEPARTMENT A DEPARTMENT B DEPARTMENT C TOTAL Base on Employees 400000 33333 66667 500000 Based on Square feet 62500 125000 312500 500000

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