Romano Corporation allocates administrative costs on the basis of staff hours.Short-run monthly usage and anticipated long-run monthly usage of staff hours for Operating Departments 1 and 2 follow.
If Romano uses dual-cost accounting procedures and fixed administrative costs total $1,000,000,the amount of fixed administrative cost to allocate to Department 1 would be:
A)$400,000.
B)$450,000.
C)$500,000.
D)$850,000.
E)some other amount.

Question

Romano Corporation allocates administrative costs on the basis of staff hours.Short-run monthly usage and anticipated long-run monthly usage of staff hours for Operating Departments 1 and 2 follow. 
If Romano uses dual-cost accounting procedures and fixed administrative costs total $1,000,000,the amount of fixed administrative cost to allocate to Department 1 would be:
A)$400,000. 
B)$450,000. 
C)$500,000. 
D)$850,000. 
E)some other amount.

Quizplus · Accepted Answer

First, we need to calculate the total staff hours for both departments in the long-run.
Department 1: (800 x 4) + (900 x 6) = 7,400 hours
Department 2: (600 x 4) + (700 x 6) = 5,800 hours
Total staff hours = 13,200 hours

Next, we need to calculate the rate per staff hour:
$1,000,000 fixed cost / 13,200 total staff hours = $75.76 per staff hour

Finally, we can calculate the fixed administrative cost allocated to Department 1 based on its long-run staff hour usage:
Department 1 long-run staff hours / total staff hours x fixed cost = 7,400 / 13,200 x $1,000,000 = $450,000

Therefore, the answer is B) $450,000.

Romano Corporation Allocates Administrative Costs on the Basis of Staff