Question

Hanung Corp has two service departments, Maintenance and Personnel. Maintenance Department costs of $300,000 are allocated on the basis of budgeted maintenance-hours. Personnel Department costs of $100,000 are allocated based on the number of employees. The costs of operating departments A and B are $160,000 and $240,000, respectively. Data on budgeted maintenance-hours and number of employees are as follows:

Support Departments Production Departments
Maintenance Department Personnel Department A B
Budgeted costs $300,000 $100,000 $160,000 $240,000
Budgeted maintenance-hours NA 800 1,200 600
Number of employees 50 NA 200 600

4) Using the direct method, what amount of Maintenance Department costs will be allocated to Department B?
A) $96,000
B) $100,000
C) $110,000
D) $122,000

5) Using the direct method, what amount of Personnel Department costs will be allocated to Department B? $75,000

6) Using the step-down method, what amount of Maintenance Department cost will be allocated to Department B if the service department with the highest percentage of interdepartmental support service is allocated first? (Round up)
A) $84,143
B) $69,231
C) $66,734
D) $71,443

7) Using the direct method, what amount of Maintenance Department costs will be allocated to Department A?

8) Using the direct method, what amount of Personnel Department costs will be allocated to Department A?
A) $25,000
B) $28,000
C) $30,000
D) $20,000

9) Using the step-down method, what amount of Maintenance Department cost will be allocated to Department A if the service department with the highest percentage of interdepartmental support service is allocated first? (Round up)

Answer 1

Using the direct method, the Maintenance Department costs allocated to Department B are approximately $69,231, and the Personnel Department costs are $75,000. The exact amount for the step-down method cannot be determined without additional interdepartmental percentages. Department A would be allocated approximately $92,308 for Maintenance and $25,000 for Personnel using the direct method.

Step-by-step explanation:

To allocate the Maintenance Department costs using the direct method to Department B, we need to consider the ratio of budgeted maintenance-hours for Department B to the total maintenance-hours for all departments (excludes Maintenance since it's the source department). The total budgeted maintenance-hours are 800 + 1200 + 600 = 2600 hours. Department B has 600 hours, which is ≈ 23.08% of the total. Therefore, Department B will be allocated 23.08% of $300,000, which equals $69,231.

Similarly, for the Personnel Department costs, we allocate based on the number of employees. With 800 total employees (200 + 600), Department B has 600, making up 75% of the total. Thus, Department B will be allocated 75% of $100,000, which equals $75,000.

The step-down method involves allocating service departments one at a time, with the highest percentage of interdepartmental support service first. If Maintenance is allocated first, we must now consider the interdepartmental hours as well. However, since the specific interdepartmental percentages are not given in the original question, we cannot calculate the exact allocation without additional information. This method would require a recalculation of percentages after each department allocation.

Lastly, allocating Maintenance Department costs to Department A using the direct method would give Department A 800 hours out of 2600 total hours, which is ≈ 30.77% of $300,000, equivalent to $92,308. For Personnel Department costs, Department A would get 25% of $100,000 since it has 200 employees out of 800, leading to an allocation of $25,000.