Calculation Of Department Total Cost Using Direct Method

Question

Airwalk Company has two service departments, Maintenance Department and Personnel Department, and two producing departments, X and Y. The Maintenance Department costs of $120,000 are allocated on the basis of standard service hours used. The Personnel Department costs of $18,000 are allocated on the basis of number of employees. The direct costs of Departments X and Y are $36,000 and $60,000, respectively. Data on standard service-hours and number of employees are as follows:

 

Maint. Dept.

Personnel Dept.

Dept. X

Dept. Y

Standard service hours expected and used

200

100

600

300

Number of employees

   5

15

25

20

 

  • Using the direct method to allocate service department costs, determine the total amount of costs for each operating department (X and Y).
  • Using the step method, if Personnel Department costs are allocated first, determine the amount of Maintenance Department cost allocated to each operating department.

 

Summary

The question belongs to Accounting and it discusses about calculation of total cost of operating departments using direct method of allocation.

Total Word Count 121

 

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