Question

Betty's Book and Music Store has two service departments, Warehouse and Data Center. Warehouse Department costs...

Betty's Book and Music Store has two service departments, Warehouse and Data Center. Warehouse Department costs of $180,000 are allocated on the basis of budgeted warehouse-hours. Data Center Department costs of $75,000 are allocated based on the number of computer log-on hours. The costs of operating departments Music and Books are $125,000 and $150,000, respectively. Data on budgeted warehouse-hours and number of computer log-on hours are as follows:

Support Departments

Production Departments

Warehouse Department

Data Center Department

Music

Books

Costs

$180,000

$75,000

$125,000

$150,000

Budgeted warehouse-hours

N/A

250 warehouse-hours

500 warehouse-hours

750 warehouse-hours

Number of computer hours

100 computer hours

N/A

300 computer hours

600 computer hours

Allocate warehouse and data center costs to the operating departments, Music and Books, using the direct method.

a) $265,625 music; $283,333 books

b) $222,000 music; $308,000 books

c) $215,000 music; $315,000 books

d) $305,000 music; $225,000 books

Business   Accounting   
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Homework Answers

Answer #1

Allocation of warehouse department ' s cost on music and book department

Allocated cost on each department = Total warehouse department cost/ Total warehouse hours of music and book department X warehouse hours of each department

Allocated cost on music department= $180000/(500+750) X 500 =$ 72000

Allocated cost on Book department= $ 180000/ (500 +750) X 750 = $108000

Allocation of Data centre department

Allocated cost of each department = Total data centre department cost / Total computer hours of music and book department X computer Hours of each department

Allocated cost on music department=$ 75000/(300+600) X 300 = $25000

Allocated cost on Book department =$75000/(300+600) X 600 = $ 50000

Total cost of music department=$ 125000 + $ 72000 + $25000 = $ 222000

Total cost of books department=$ 150000 + $ 108000 + $50000 =$ 308000

Option (b) is correct.

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