Question

Nichols Corporation allocates administrative costs on the basis of staff hours. Short-run monthly usage and anticipated long-run monthly usage of staff hours for Operating Departments 1 and 2 follow. Department 1 Department 2 Total Short-run usage (hours) 45,000 55,000 100,000 Long-run usage (hours) 48,000 52,000 100,000 Variable and fixed administrative costs total $180,000 and $400,000, respectively. If Nichols uses dual-cost accounting procedures, the total amount of administrative cost to allocate to Department 2 would be:

Answer 1

Answer: $307,000

Step-by-step explanation:

The total amount of administrative cost that will be allocated to Department 2 will be gotten by adding the fixed administrative cost together with the variable administrative cost. This will be:

Fixed administrative cost = 400,000 × 52/100 = $208,7000

Add: Variable administrative cost = 180,000 × 55/100 = $99,000

Total cost = $307,000