Question

Riemer, Inc. has four departments. Information about these departments is listed below. Maintenance is a service department. If allocated maintenance cost is based on floor space occupied by each of the other departments, compute the amount of maintenance cost allocated to the Cutting Department. (Do not round your intermediate computations.)
Maintenance Cutting Assembly Packaging
Direct costs $17,000 $29,000 $69,000 $44,000
Sq. ft. of space 500 1,000 2,000 2,000
No. of employees 2 2 2 2
a. $1,769.
b. $3,400.
c $2,724.
d. $17,000.
e. $8,500.

Answer 1

Answer:

option (b) $3,400

Explanation:

Data provided in the question:

                             Maintenance     Cutting      Assembly     Packaging

Direct costs            $17,000          $29,000      $69,000       $44,000

Sq. ft. of space         500                 1,000           2,000              2,000

No. of employees      2                      2                  2                        2

Now,

Maintenance cost per square feet of space

= Direct costs ÷ ( total floor space excluding maintenance cost )

= $17,000 ÷ ( 1,000 + 2,000 + 2,000 )    

= $3.4 per square feet

Therefore,

Maintenance cost allocated to the cutting department

= Maintenance cost per square feet of space × Area of cutting space

= $3.4 × 1,000          

= $3400

Hence,

the correct answer is option (b) $3,400