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Morris Manufacturing Company has two support departments, Maintenance Department (MD) and Personnel Department (PD), and two...

Morris Manufacturing Company has two support departments, Maintenance Department (MD) and Personnel Department (PD), and two line departments, X and Y. The cost driver in MD is service hours. The cost driver in PD is number of employees. Plan data for the departments, including service hours used by each department, is shown below. Using the direct method, what is plan PD cost assigned to Department Y?
   MD    PD X Y
service hours -- 75   600 300
employees 50   100 150   150
labor hours 125 125   500 250
plan cost (000s) $30 $4.5 $9 $15

Business   Accounting   
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Answer #1

The cost driver in PD is number of employees.

Hence, plan PD cost will be allocated to departments on the basis of number of employees.

Number of employees in department X = 150

Number of employees in department Y = 150

Total number of employees in departments X and Y = Number of employees in department X + Number of employees in department Y

= 150 + 150

= 300

Plan PD cost assigned to Department Y = Plan PD cost x Number of employees in department Y/Total number of employees in departments X and Y

= 4,500 x 150/300

= $2,250

Please ask if you have any query related to the question. Thank you

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