Question - Use the following to answer questions 1 and 2:
Spacer Company has two service departments and two operating departments. Budgeted costs and budgeted activity in the various departments for last year are shown below:
Custodial Cutting Assembly
Services Cafeteria Department
Departmental costs $50,400 $28,000 $120,000 $200,000
Square feet occupied 500 1,000 4,000 5,000
Number of employees 10 15 75 100
Machine-hours 10,000 15,000
Service department costs are allocated to operating departments with the costs of Custodial Services allocated on the basis of square feet of space occupied and the costs of the Cafeteria on the basis of number of employees. The departmental costs for the cutting and assembly departments are overhead costs. Predetermined overhead rates in the Cutting and Assembly departments are based on machine-hours.
1. Assume that the company uses the direct method of allocation. The predetermined overhead rate in the Assembly Department would be closest to:
A) $16.27
B) $15.00
C) $15.87
D) $16.00
2. Assume that the company uses the step method of allocation with Custodial Services allocated first. The amount of Custodial Services cost allocated to the Assembly Department would be:
A) $0
B) $28,000
C) $24,000
D) $25,200