Question

Gustavson Corporation uses the direct method to allocate service department costs to operating departments. The company has two service departments, Administrative and Facilities, and two operating departments, Assembly and Wholesaling.

Service Departments Operating Departments Administrative Facilities Assembly Wholesaling
Dept Costs $26,840 $59,400 $183,430 $321,190
Employee hours 4,000 2,000 29,000 15,000
Space occupied 2,000 2,000 30,000 6,000
Administrative costs are allocated on the basis of employee hours and Facilities costs are allocated on the basis of space occupied. The total Wholesaling Department cost after the allocations of service department costs is closest to:_______.a. $337,530b. $331,090c. $340,240
d. $340,426

Answer 1

c. $340,240

Explanation:

The computation of total Wholesaling Department cost is shown below:-

Administrative costs = $26,840 × 15,000 ÷ (29,000 + 15,000)

= $26,840 × 15,000 ÷ 44,000

= $9,150

Facilities costs = $59,400 × 6,000 ÷ (30,000 + 6,000)

= $59,400 × 6,000 ÷ 36,000

= $9,900

Total wholesaling department

= Wholeselling department cost + administrative cost + facilities cost

= $321,190 + $9,150 + $9,900

= $340,240