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Oaks Company has two support departments, Maintenance Department (MD) and Personnel Department (PD), and two line...

Oaks Company has two support departments, Maintenance Department (MD) and Personnel Department (PD), and two line departments, P1 and P2. The MD cost driver is service hours. The PD cost driver is number of employees. Plan data, including service hours used by each department, is shown below. What is planned MD cost assigned to P2 using the direct method?
   MD PD P1 P2
service hours -- 50 300 150
employees 10 20 90 90
labor hours 50 50 250 250
plan cost (000s) $30 $4.5 $9 $15

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Answer #1

Planned MD Cost assigned to P2 would be $10

Detail working for your refrence

Direct Method
Allocation Ratios MD PD
Proportion of Service Hour                   0.67                           0.33
(300/450) (150/450)
Proportion of No. of Employee 0.5 0.5
(90/180) (90/180)
Cost Allocation P1 P2
Direct Cost $9.0 $15.0
MD $20.0 $10.0
( 30*0.67 & 0.33)
PD $2.25 $2.25
(4.5*0.5 & 0.5)
Total Cost $31.25 $27.25
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