Question

Goldfarb's Book and Music Store has two service departments, Warehouse and Data Center. Warehouse Department costs of $350,000 are allocated on the basis of budgeted warehouse-hours. Data Center Department costs of $150,000 are allocated based on the number of computer log-on hours. The costs of operating departments Music and Books are $250,000 and $300,000, 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
Budgeted costs	$350,000	$150,000	$125,000	$150,000
Budgeted warehouse-hours	NA	500	1,000	1,500
Number of computer hours	200	NA	800	1,000

Using the direct method, what amount of Data Center Department costs will be allocated to Department Music?

$60,000

$66,667

$83,333

$150,000

Answer 1

The correct answer is $66,667.

Supporting calculations:

As per the given data, the Data Center Department costs of $150,000 are allocated based on the number of computer log-on hours so the total number of computer log-on hours are 1,800 (800 + 1,000).

Amount of Data Center Department costs allocated to Department Music = $150,000/1,800 computer log-on hours * 800 computer log-on hours

= $150,000 / 1,800 * 800

= $66,667

Therefore, amount of data center department costs allocated to department music are $66,667.