Answer the following question(s)using the information below:
Betty's Book and Music Store has two service departments, Warehouse and Data Centre.Warehouse Department costs of $175,000 are allocated on the basis of budgeted warehouse-hours.Data Centre Department costs of $75,000 are allocated based on the number of computer log-on hours.The costs of operating departments Music and Books are $125,000 and $150,000, respectively.Data on budgeted warehouse-hours and number of computer log-on hours are as follows:

-Using the direct method, what amount of Data Centre Department costs will be allocated to Department Music?
A)$75,000
B)$33,333
C)$41,667
D)$30,000
E)$97,222

Question

Answer the following question(s)using the information below:
Betty's Book and Music Store has two service departments, Warehouse and Data Centre.Warehouse Department costs of $175,000 are allocated on the basis of budgeted warehouse-hours.Data Centre Department costs of $75,000 are allocated based on the number of computer log-on hours.The costs of operating departments Music and Books are $125,000 and $150,000, respectively.Data on budgeted warehouse-hours and number of computer log-on hours are as follows:
 
-Using the direct method, what amount of Data Centre Department costs will be allocated to Department Music?
A)$75,000 
B)$33,333 
C)$41,667 
D)$30,000 
E)$97,222

Quizplus · Accepted Answer

The direct method allocates service department costs directly to operating departments without allocating them to each other. Therefore, only the costs of the Warehouse and Data Centre Departments will be allocated to the Music and Books Departments.

The Data Centre Department costs of $75,000 will be allocated based on the number of computer log-on hours. The total number of log-on hours for both Departments Music and Books is 20,000 + 10,000 = 30,000.

To find the amount of cost allocated to Department Music:
Cost allocated to Department Music = (Number of log-on hours for Department Music / Total number of log-on hours) x Data Centre Department cost 
= (20,000 / 30,000) x $75,000 
= $50,000 x 0.8333 
= $41,667

Therefore, the best choice is B, which is $41,667.

Answer the Following Question(s)using the Information Below