The fixed costs of Baxter Company\'s personnel department are allocated to opera

Question

The fixed costs of Baxter Company's personnel department are allocated to operating departments on the basis of direct labor-hours. The following data have been provided:

                                                                Operating X            Department Y

Direct-labor hours-long-run average-       15000                         10000

Direct-labor hours-Actual                           10000                     6000

The fixed costs of the personnel department are budgeted at $56,000 per year and are incurred in order to support long-run average requirements. How much of this fixed cost should be charged to Operating Department X at the end of the year for performance evaluation purposes:

a. 35000

b. 33600

c. 52500

d. 22400

Explanation / Answer

b. 33600 Since the fixed costs are are incurred in order to support long-run average requirements therefore it should be allocated basis Direct-labor hours-long-run average Particulars Deptt X Deptt Y Total Direct-labor hours-long-run average-                15,000.00             10,000.00                           25,000.00 Fixed Overheads                           56,000.00 Fixed Overhead per Direct-labor hours-long-run average-                                      2.24 Allocation of Fixed Overheads Deptt X= 15,000 * 2.24 Deptt Y = 10,000 *2.24                33,600.00             22,400.00

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