Alberta Book Company has a plant with two service departments and two operating departments.
The human resource department allocates its costs based on the number of workers in the
departments it allocates costs to.
The maintenance department allocates its costs based on the number of square feet in the
departments it allocates costs to.
Assume the assembely department is labor intensive and the finishing department is machine intensive.
The assembly department allocates costs to the jobs based on the direct labor hours used on the job.
The finishing department allocates costs to the jobs based on the number of machine hours used
on the job.
The following data are available for December:
SERVICE
SERVICE
Time left
DEPARTMENT
HUMAN RESOURCE
DEPARTMENT
MAINTENANCE
OPERATING
DEPARTMENT
ASSEMBLY
OPERATING
DEPARTMENT
FINISHING
BUDGETED COSTS $ 300,000
$ 200,000
$ 1,000,000
$ 800,000
20
30
50
# OF EMPLOYEES
SQUARE FEET
10,000
TOTAL NUMBER OF MACHINE HOURS IN THE FINISHING DEPARTMENT
TOTAL NUMBER OF DIRECT LABOR HOURS IN ASSEMBLY
40,000
50,000
10,000
180,000
ALLOCATE THE SERVICE DEPARTMENT COSTS TO THE PRODUCING DEPARTMENTS
USING THE RECIPROCAL METHOD.
1 What is the true cost of the Human Resource department?
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2 What is the true cost of the Maintenance department?
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3 How much of the Human Resource department costs are allocated to the Assembly department?
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4 How much of the Maintenance department costs are allocated to the Finishing department?
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5 What is the predetermined overhead rate of the Assembly Department?
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6 What is the predetermined overhead rate of the Finishing Department?
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