Hanung Corp has two service departments, Maintenance and Personnel. Maintenance Department costs of $360,000 are allocated on the basis of budgeted maintenance-hours. Personnel Department costs of $110,000 are allocated based on the number of employees. The costs of operating departments A and B are $188,000 and $282,000, respectively. Data on budgeted maintenance-hours and number of employees are as follows

Support Production

Departments Departments

Maintenance Personnel

Department Department A B

Budgeted costs $360,000 $110,000 $188,000 $282,000

Budgeted maintenance-hours NA 880 1230 680

Number of employees 60 NA 290 630

Using the direct method, what amount of Maintenance Department costs will be allocated to Department B?

a. $100,398

b. $128,168

c. $87,742

d. $167,330

b. $128,168

Explanation:

Hanung Corp

Service Departments

Maintenance Department Personnel Department

Costs $360,000 $110,000

Cost Driver budgeted maintenance-hours number of employees

Budgeted

Maintenance-hours NA 880

Number of employees 60 NA

Production Departments

Department A Department B

Budgeted Costs $188,000 $282,000

Budgeted

Maintenance-hours 1230 680

Number of employees 290 630

First we find the rate by dividing the total budgeted cost of Maintenance with the budgeted maintenance hours then we multiply it with the maintenance hours of Department to B to get Department B maintenance Costs.

Using the direct method, the amount of Maintenance Department costs will be allocated to Department B

= ($ 360,000 / 1230+680) * 680 = ($ 360,000 / 1910) * 680=$ 128167.53

= $ 128167

So choice B is the correct answer.