Question

Demopolis Company has the following divisions organized as profit centers, the Residential Division, Commercial Division, and Government Division. The revenues and expenses for the divisions are as follows:

	Residential Division	Commercial Division	Government Division	Corporate
Revenues	850,000	700,000	$ 1,200,000
Operating expenses	550,000	320,000	600,000
Legal				240,000
Central accounting				150,000

Information on usage of the service departments is:

	Residential Division	Commercial Division	Government Division	Total
Legal: number of hours billed	3,700	4,500	6,800	15,000
Central accounting: number of accounting reports	2,500	1,500	1,400	5,400

How much is the service department charge rate for legal?

Group of answer choices

$10 per hour billed

$16 per hour billed

$.06 per hour billed

$22 per hour billed

Answer 1

service cost are allocated to profit centres on the basis of cost drivers like hours used, days worked, reports made etc by profit centres.

Departmental charge rate for legal= Total cost/Total number of hours billed

Given information:

*Total cost for legal=$240,000

*Total number of hours billed = 15,000

___________________________________

Departmental charge rate for legal=$240,000/15,000

=$16 per hour billed

Answer B)

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