26. Pederson Company has two service departments (Cafeteria and Human Resources)

Question

26.   

Pederson Company has two service departments (Cafeteria and Human Resources) and two production departments (Machining and Assembly). The number of employees in each department follows.
   

Pederson uses the direct method of cost allocation and allocates cost on the basis of employees. If Human Resources cost amounts to $1,800,000, how much of the department's cost would be allocated to Assembly? (Do not round your intermediate calculations.)

Multiple Choice

$600,000.

$675,000.

$1,125,000.

$1,080,000.

None of these.

21.  

James Company has an asset that cost $7,000 and currently has accumulated depreciation of $4,000. Suppose the firm sold the asset for $2,700 and is subject to a 30% income tax rate.

The loss on disposal would be:

Multiple Choice

$210.

$300.

$390.

$2,700.

none, because the transaction produced a gain.

Explanation / Answer

Answers

No. of employees in Production departments:
machining – 300
assembly – 500

Total = 800 employees [300 + 500]

Human resource cost to be allocated to Assembly department = $1,800,000 x (500/800)

= 1800000 x (500/800)
=1800000 x 0.625
=$ 1,125,000

Hence, correct answer is Option 3rd $ 1,125,000

Asset costed $7000
Accumulated Depreciation $4000

Book Value at the time of sale = 7000 – 4000 = $3,000

Book Value is $3,000, but it is sold for $2,700.

Hence, loss on disposal = 3000 – 2700 = $300

Hence, correct answer is Option 2nd $300

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