Golden Leaves Company Has Two Support Departments, Maintenance Department (MD)

question 143

Multiple Choice

Golden Leaves Company has two support departments, Maintenance Department (MD) and Personnel Department (PD) , and two producing departments, P1 and P2. The Maintenance Department costs of $30,000 are allocated on the basis of standard service used. The Personnel Department costs of $4,500 are allocated on the basis of number of employees. The direct costs of Departments P1 and P2 are $9,000 and $15,000, respectively. Data on standard service hours and number of employees are as follows: $$\begin{array} { l r r r r } & \text { MD } & \text { PD } & \text { P1 } & { \text { P2 } } \\\text { Standard service hours used } & 100 & 50 & 300 & 150 \\\text { Number of employees } & 10 & 20 & 90 & 90 \\\text { Direct labor hours } & 50 & 50 & 250 & 250\end{array}$$
Using the sequential method, if the support department with the highest percentage of interdepartmental service is allocated first, the cost of the support departments allocated to Department P1 is

• A)$12,750.
• B)$24,000.
• C)$21,750.
• D)$20,295.

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Definitions:

Long-Run Cost Function

A graphical or mathematical representation that shows the lowest cost at which a firm can produce any given level of output in the long run, when all inputs are variable.

Positive Output

A situation where the production of goods or services is above zero.

Production Function

An equation or system that illustrates the connection between production inputs and the resulting products or services.

Long-Run Total Cost

Refers to the total cost incurred by a firm in producing a given output when all inputs, including both fixed and variable costs, are considered over a longer period.