Question

Angelo Tucking is divided into two operating divisions: Perishable Foods and Household Goods. The company allocates personnel and accounting costs to each operating division. Personnel costs are allocated on the basis of employees. Accounting costs are allocated on the basis of the number of transactions processed. Allocations for the coming year are based on the following data:

	Service Departments		Operating Divisions
	Personnel	Accounting	Perishable Foods	Household Goods
Overhead costs	$100,000	$205,000	$80,000	$50,000
Number of employees	20	60	60	80
Transactions processed	2,000	200	3,000	5,000

If Angelo uses the direct method to allocate service department costs, what is the total costs (after allocation) reported by the Perishable Foods division (rounded to the nearest thousand)?

$198,000

$200,000

$80,000

$235,000

Answer 1

				perishable	Household
	overhead costs			80,000	50,000
	personnel			42,857
	accounting			76,875
				199,732
	(slight difference is due to rounding)
	answer)
	200,000
	personnel cost allocation rate
	100,000/(60+80)
	714.2857
	allocated to perishable			714.2857*60
	accounting
	205,000/8000
	25.625
	allocated to perishable			25.65*3000
				76875