VelCraft Allocates Costs from Its Payroll Department and the Maintenance

question 7

Multiple Choice

VelCraft allocates costs from its payroll department and the maintenance department to its production departments using the direct method of allocation. Payroll department costs are allocated based on the number of employees in the department and maintenance department costs are allocated based on the number of square feet that the production department occupies within the factory. Information about the departments is presented below: $$\begin{array} { l c c c } \text { Denartment } & \text { Costs } & \begin{array} { c } \text { Number of } \\\text { Emplovees }\end{array} & \begin{array} { c } \text { Number of Square } \\\text { Eeet Occupied }\end{array} \\\hline\text { Payroll } & \$ 150,000 & 2 & 2,000 \\\text { Maintenance } & \$ 220,000 & 8 & 64,000 \\\text { Molding } & & 75 & 100,000 \\\text { Finishing } & & 50 & 60,000 \\\text { Packaging } & & 25 & 40,000\end{array}$$ When the payroll department costs are allocated, what is the amount per employee that will be charged to each of the departments?

• A) $937.50
• B) $15,000
• C) $6.67
• D) $1,000

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Definitions:

Accounting Period

A specific duration of time used in accounting to prepare financial statements, often a quarter or a year.

Interest Earned

Income received from investments in interest-bearing accounts or securities, such as savings accounts, bonds, or loan interest.

Investment

The allocation of resources, usually money, in the expectation of generating an income or profit.