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	%		30	%		45	%		25	%
Maintenance		70	%		0	%		20	%		10	%

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

Purchasing	$	147,000
Maintenance		69,000
Fabrication		123,000
Assembly		99,000

The total cost accumulated in the fabrication 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

• $263,500.

• $327,600.

• $291,250.

• $174,500.

• $123,000.

Answer 1

Answer- The total cost accumulated in the fabrication department using the direct method is = $263500.

Explanation-

Direct Method of Allocating Service Deprtament Costs
	SERVICE DEPARTMENTS	PRODUCTION DEPARTMENTS
	PURCHASING	MAINTENACE	FABRICATION	ASSEMBLY
	$	$	$	$
Direct operating costs	147000	69000	123000	99000
Allocation of Purchasing Department	-147000		147000*45/70= 94500	147000*25/70= 52500
Allocation of Maintenance Department		-69000	69000*20/30= 46000	69000*10/30= 23000
Total direct operating costs $	0	0	263500	174500