Hanung Corp has two service departments, Maintenance and Personnel. Maintenance
ID: 2452140 • Letter: H
Question
Hanung Corp has two service departments, Maintenance and Personnel. Maintenance Department costs of $300,000 are allocated on the basis of budgeted maintenance-hours. Personnel Department costs of $100,000 are allocated based on the number of employees. The costs of operating departments A and B are $160,000 and $240,000, respectively. Data on budgeted maintenance-hours and number of employees are as follows:
Support Departments
Production Departments
Maintenance Department
Personnel Department
A
B
Budgeted costs
$300,000
$100,000
$160,000
$240,000
Budgeted maintenance-hours
NA
800
1,200
600
Number of employees
50
NA
200
600
Use the step method to allocate maintenance and personnel department costs to the production departments. Show the total costs of the production departments. Allocate maintenance department costs first.
Support Departments
Production Departments
Maintenance Department
Personnel Department
A
B
Budgeted costs
$300,000
$100,000
$160,000
$240,000
Budgeted maintenance-hours
NA
800
1,200
600
Number of employees
50
NA
200
600
Explanation / Answer
Departmental Expense Allocation Spreadsheet Allocation Expense Maintenance Personnel Prod-A Prod-B Base Total Deptt. Deptt. Deptt. Deptt. Total Deptt expense 800000 300000 100000 160000 240000 Support Department Maintenance Maint. Hours -300000 92308 138462 69230 (800:1200:600) Subtotal 800000 0 192308 298462 309230 Personnel Employees -192308 48077 144231 (200:600) Total Expense allocated 800000 0 0 346539 453461 Note: Step Method, once allocated the overheads of other support departments will not be allocated to the respective support department again.
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