Question

Annapolis Company has two service departments (Computer Operations & Maintenance Services). Annapolis has two production departments (Mixing Department & Packaging Department.) Annapolis uses a direct allocation method where service departments are allocated only to production departments. All allocations are based on total employees. Computer Operations has costs of $195,000 and Maintenance Services has costs of $195,000 before any allocations. What amount of Maintenance Services total cost is allocated to the Packaging Department? (round to closest whole dollar) Employees are:

            Computer Operations 3

            Maintenance Services 4

Mixing Department 7

Packaging Department 4

Answer 1

Maintenance Services department cost = $195,000

Number of employees in Mixing Department = 7

Number of employees in Packaging Department = 4

Total number of employees in the Mixing Department and Packaging Department = Number of employees in Mixing Department + Number of employees in Packaging Department

= 7 + 4

= 11

Allocation ratio of the Packaging Department = Number of employees in Packaging Department/Total number of employees in the Mixing Department and Packaging Department

= 4/11

Maintenance Services cost allocated to the Packaging Department = Maintenance Services department cost x Allocation ratio of the Packaging Department

= 195,000 x 4/11

= $70,909