Question

Mervon Company has two operating departments: mixing and bottling. Mixing has 300 employees and occupies 23,485 square feet. Bottling has 200 employees and occupies 19,215 square feet.
Indirect factory costs for the current period follow: administrative, $220,000; and maintenance, $208,000.If the maintenance costs are allocated to operating departments based on square footage, determine the amount of maintenance costs allocated to each operating department.

Answer 1

Answer:

Mixing department = $208,000 × 0.55 = $114,400

Bottling department  = $208,000 × 0.45 = $93,600

Explanation:

The computation of the allocation of the maintenance costs to each operating department is shown below:

Mixing department = 23,485 square feet

Bottling department = 19,215  square feet

Total square feet = 42,700 square feet

Now the weightage would be

Mixing department = Mixing department square feet ÷ Total square feet

                                = 23,485 ÷ 42,700

                                = 0.55

And, for bottling department would be

= Bottling department square feet ÷ Total square feet

= 19,215 ÷ 42,700

= 0.45              

Now the allocation would be

Mixing department = $208,000 × 0.55 = $114,400

Bottling department  = $208,000 × 0.45 = $93,600