The managers of Rochester Manufacturing are discussing ways to allocate the cost
ID: 2592171 • Letter: T
Question
The managers of Rochester Manufacturing are discussing ways to allocate the costs of service departments, such as Quality Control and Maintenance, to the production departments. To aid them in this discussion, the controller has provided the following information:
Quality Control
Maintenance
Machining
Assembly
Total
Budgeted overhead costs before allocation
$350,000
$200,000
$400,000
$300,000
$1,250,000
Budgeted machine hours
--
--
50,000
--
50,000
Budgeted direct labor hours
---
---
--
25,000
25,000
Budgeted hours of service:
Quality control
---
7,000
21,000
7,000
35,000
Maintenance
10,000
---
18,000
12,000
40,000
If Rochester uses the direct method of allocating service department costs, the total service costs allocated to the assembly department would be:
A) $80,000
B) $87,500
C) $120,000
D) $167,500
Please Show All Steps. Thank You.
Quality Control
Maintenance
Machining
Assembly
Total
Budgeted overhead costs before allocation
$350,000
$200,000
$400,000
$300,000
$1,250,000
Budgeted machine hours
--
--
50,000
--
50,000
Budgeted direct labor hours
---
---
--
25,000
25,000
Budgeted hours of service:
Quality control
---
7,000
21,000
7,000
35,000
Maintenance
10,000
---
18,000
12,000
40,000
Explanation / Answer
Solution: $167,500
Explanation: 167,500 = 87,500 + 80,000
Machining Assembly
Quality control
$350,000 (21/28 * $350,000) = $262,500 (7/28 * $350,000) = $87,500
Maintenance
$200,000 (18/30 * $200,000) = $120,000 (12/30 * $200,000) = $80,000
$382,500 $167,500
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