Question

The Merchant Manufacturing Company has two service departments — purchasing and maintenance, and two production departments — fabrication and assembly. The distribution of each service department's efforts to the other departments is shown below:

FROM	TO
	Purchasing			Maintenance			Fabrication			Assembly
Purchasing		0	%		45	%		40	%		15	%
Maintenance		35	%		0	%		35	%		30	%

The direct operating costs of the departments (including both variable and fixed costs) were as follows:

Purchasing	$	108,000
Maintenance		30,000
Fabrication		84,000
Assembly		60,000

The total cost accumulated in the assembly department using the direct method is (calculate all ratios and percentages to 4 decimal places, for example 33.3333%, and round all dollar amounts to the nearest whole dollar):

Multiple Choice

• $178,699.

• $176,100.

• $147,300.

• $103,301.

• $116,308.

Answer 1

Solution:

The correct answer is Option(D). $103,301.

Calculations:

From the given data first we need to calculate the ratios and percentages.

Calculations are,

	Purchasing	Maintenance
Ratio	(40:15)	(35:30)
Fabrication	72.7272%	53.8461%
Assembly	27.2727%	46.1538%

Now,

The total cost accumulated in the assembly department using the direct method.

	Purchasing	Maintenance	Fabrication	Assembly
Operating Cost	$108,000	$30,000	$84,000	$60,000
Purchasing (40:15)	($108,000)		$78,545	$29,455
Maintenance (35:30)		($30,000)	$16,154	$13,846
Total Accumulated cost	$0	$0	$178,699	$103,301