Andover, Inc $\text { Support department hours used: }$ $\begin{array}{rr}\text { Department } X & 12,000 \\\text { Department } Y & 4,000 \\\text { Total hours } & \mathbf{1 6 , 0 0 0}\end{array}$

question 25

Multiple Choice

Andover, Inc., has two producing departments. Each producing department is held responsible for a share of the costs of a support department. Actual and budgeted data are as follows: $\text { Support department hours used: }$
$\begin{array}{rr}\text { Department } X & 12,000 \\\text { Department } Y & 4,000 \\\text { Total hours } & \mathbf{1 6 , 0 0 0}\end{array}$

$\begin{array}{l}\text { Support department costs: }\\\begin{array}{ll}\text { Actual support department costs } & \$ 48,000 \\\text { Budgeted fixed department costs } & \$ 20,000 \\\text { Budgeted variable rate per hour } & \$ 2.50\end{array}\end{array}$
Normal support department usage is 8,000 hours each for Department X and Department Y. Assuming the direct method is used and the purpose is performance evaluation, support department costs allocated to Department X are

• A)$45,000.
• B)$36,400.
• C)$40,000.
• D)$36,000.

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Definitions:

Fixed Costs

Expenses that do not change with the level of production or sales activities within a short time frame, such as rent, salaries, and insurance.

Variable Cost

Charges that adjust in accordance with the quantity of production or the scale of sales.

Incremental Profit

The additional profit derived from a specific business decision, comparing the profit levels before and after the decision.

Selling Price

The amount at which a product or service is sold to customers.