Spacer Company has 2 service departments and two operating departments. Budgeted costs and budgeted activity in the several departments for last year are given below:
Custodial Cutting Assembly
Services Cafeteria Department 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 costs of Custodial Services allocated on basis of square feet of space occupied and costs of Cafeteria on the basis of number of employees. The departmental costs for cutting and assembly departments are overhead costs. Predetermined overhead rates in Cutting and Assembly departments are based on machine-hours.
1. Suppose that the company uses the direct method of allocation. The pre-determined overhead rate in Assembly Department would be closest to:
A) $16.27
B) $15.00
C) $15.87
D) $16.00
2. Suppose that company uses the step method of allocation with Custodial Services allocated first. The amount of Custodial Services cost allocated to Assembly Department would be:
A) $0
B) $28,000
C) $24,000
D) $25,200