County Company has two service departments, Maintenance and Personnel, as well as two production departments, Mixing and Finishing. Maintenance costs are allocated based on square footage, while personnel costs are allocated based on number of employees. The following information has been gathered for the current year:

-If the direct method is used to allocate costs, the total cost of the Finishing Department after allocation would be
A) $30,857.
B) $27,429.
C) $158,286.
D) $100,000.

Question

County Company has two service departments, Maintenance and Personnel, as well as two production departments, Mixing and Finishing. Maintenance costs are allocated based on square footage, while personnel costs are allocated based on number of employees. The following information has been gathered for the current year:
 
-If the direct method is used to allocate costs, the total cost of the Finishing Department after allocation would be
A) $30,857. 
B) $27,429. 
C) $158,286. 
D) $100,000.

Quizplus · Accepted Answer

The direct method allocates service department costs directly to production departments without recognizing any service provided between service departments. The total cost of the Finishing Department after allocation would be the sum of its direct costs and the allocated costs from service departments, which is $158,286.

County Company Has Two Service Departments, Maintenance and Personnel, as Well