The Hsu Manufacturing Company Has Two Service Departments: Maintenance and Accounting

question 57

Multiple Choice

The Hsu Manufacturing Company has two service departments: Maintenance and Accounting. The Maintenance Department's costs of $300,000 are allocated on the basis of machine hours. The Accounting Department's costs of $120,000 are allocated on the basis of the number of employees within a specific department. The direct departmental costs for A and B are $300,000 and $500,000, respectively.
$$\begin{array} { | l | r | r | r | r | } \hline & \text { Maintenmes } & \text { Accounting } & \text { A } & \text { B } \\\hline \text { Machine hours } & 480 & 20 & 2,300 & 200 \\\hline \text { Number of employees } & 2 & 2 & 8 & 4 \\\hline\end{array}$$

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What is the Maintenance Department's cost allocated to Department B (rounded to the nearest whole dollar) using the step method and assuming the Maintenance Department's costs are allocated first?

• A) $276,000.
• B) $230,000.
• C) $322,000.
• D) $23,810.

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Definitions:

Market Price

The market price at which you can currently buy or sell an asset or service.

Interest Tax Savings

The reduction in tax payments resulting from the deduction of interest payments on debt from taxable income.

Discount Rate

In DCF analysis, the rate used to calculate the present worth of future cash flows.

NOPAT

NOPAT (Net Operating Profit After Taxes) is a financial metric that calculates a company's potential cash earnings if it had no debt, focusing on its operational efficiency.