Ransall Auto Parts Has Two Service Departments-Maintenance and Personnel, and Three

question 127

Multiple Choice

Ransall Auto Parts has two service departments-maintenance and personnel, and three production departments-fabrication, assembly, and packaging. Service costs are allocated to producing departments using the direct method. Information on overhead in each department and possible allocation bases appear below: $\begin{array}{lrrrrr}&\text { Maintenance }&\text {Personnel}&\text { Eabrication }&\text {Assembly}&\text {Packaging }\\\hline\text { Cost } & \$ 90,000 & \$ 130,000 & & & \\\text { Machine hours } & & & 12,000 & 30,000 & 18,000 \\\text { Employees } & 4 & 16 & 24 & 30 & 20\end{array}$ Using the most logical activity base, how much maintenance cost will be allocated to packaging?

• A) $3,600
• B) $27,000
• C) $33,750
• D) $30,000

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Definitions:

Incremental Cash Flows

The additional cash flow received by an organization from undertaking a new project, considered essential for analysis in capital budgeting.

Firm's Future Cash Flows

Expected cash receipts and payments a company anticipates over future periods of time.

Present Value

Present value is the current worth of a future sum of money or stream of cash flows given a specified rate of return.

Comprehensive Income

An overall measure of all changes in equity from non-owner sources, capturing both realized and unrealized gains and losses.