Question

Rave Reviews Company has two service departments (Cafeteria and Human Resources) and two production departments (Machining and Assembly). The number of employees in each department follows. Cafeteria 40 Human Resources 60 Machining 200 Assembly 300 Rave Reviews uses the direct method of cost allocation and allocates cost on the basis of employees. If Human Resources cost amounts to $1,800,000, how much of the department's cost would be allocated to Assembly

Answer 1

$1,080,000

Step-by-step explanation:

Calculation to determine how much of the department's cost would be allocated to Assembly

First step is to calculate the Total number of employees to be considered for direct method allocation

Total number of employees to be considered for direct method allocation = 200 + 300

Total number of employees to be considered for direct method allocation = 500

Now let calculate the Overhead cost allocated to Assembly

Overhead cost allocated to Assembly = (300 ÷ 500)×$1,800,000

Overhead cost allocated to Assembly = 60% x $1,800,000

Overhead cost allocated to Assembly = $1,080,000

Therefore how much of the department's cost would be allocated to Assembly is $1,080,000