Todd Company has two production departments called Assembly and Finishing.The maintenance department serves both production departments.Maintenance costs are allocated based on labor hours.Budgeted fixed costs for the maintenance department are $30,000.Budgeted variable costs for the maintenance department are $5.00 per labor hour.Other relevant data follow:
$$\begin{array} { l l l }
& \text { Assembly } & \text { Pinishing } \
\text { Capacity available } & 20,000 \text { labor hours } & 15,000 \text { labor hours } \
\text { Capacity used } & 15,000 \text { labor hours } & 9,000 \text { labor hours }
\end{array}$$
Actual maintenance department costs:
$\begin{array}{ll}
\text { Fixed } & \$ 36,000 \
\text { Variable } & \$ 100,000
\end{array}$
The amount of variable maintenance department costs allocated to the Finishing Department should be ________.
A) $37,500
B) $42,000
C) $45,000
D) $75,000

Question

Todd Company has two production departments called Assembly and Finishing.The maintenance department serves both production departments.Maintenance costs are allocated based on labor hours.Budgeted fixed costs for the maintenance department are $30,000.Budgeted variable costs for the maintenance department are $5.00 per labor hour.Other relevant data follow:
$$\begin{array} { l l l } 
& \text { Assembly } & \text { Pinishing } \
\text { Capacity available } & 20,000 \text { labor hours } & 15,000 \text { labor hours } \
\text { Capacity used } & 15,000 \text { labor hours } & 9,000 \text { labor hours }
\end{array}$$
Actual maintenance department costs:
$\begin{array}{ll}
\text { Fixed } & \$ 36,000 \
\text { Variable } & \$ 100,000
\end{array}$
The amount of variable maintenance department costs allocated to the Finishing Department should be ________.
A) $37,500
B) $42,000
C) $45,000
D) $75,000

Quizplus · Accepted Answer

The total labor hours used are 15,000 (Assembly) + 9,000 (Finishing) = 24,000 hours. The variable maintenance cost per labor hour is $100,000 / 24,000 hours = $4.17 per hour. For the Finishing Department, with 9,000 labor hours used, the allocated variable maintenance cost is 9,000 hours * $4.17 per hour = $37,530, which is closest to option C, $45,000. However, the calculation provided leads to an error in the final step. The correct approach to find the proportion of variable costs allocated to the Finishing Department based on labor hours used should directly relate to the total variable costs and the proportion of hours used by the Finishing Department. Given the mistake in the calculation explanation, the correct allocation should be based on the original method of $5.00 per labor hour as budgeted, leading to 9,000 hours * $5.00 = $45,000 directly, without needing to recalculate the cost per hour based on actual costs.

Todd Company Has Two Production Departments Called Assembly and Finishing