Cost Accounting Quiz
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OVERHEAD ALLOCATION AND ACTIVITY-BASED COSTING
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Apex Manufacturing uses the direct method to allocate service department costs. The company has discovered that its allocation bases have been incorrectly including services provided to other service departments. Historically, Maintenance department costs of $360,000 were allocated using total machine hours (including 2,000 hours for the Utilities service department), and Utilities costs of $180,000 were allocated using total kilowatt-hours (including 50,000 kWh for Maintenance). Production Department 1 uses 6,000 machine hours and 150,000 kWh. Production Department 2 uses 9,000 machine hours and 100,000 kWh. What is the corrected allocation to Production Department 1 under the proper direct method, and how does it compare to the incorrect historical allocation?
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