McHugh Company Allocates Common Building Department Costs to Producing Departments

question 70

Multiple Choice

McHugh Company allocates common Building Department costs to producing departments (P1 and P2) based on space occupied, and it allocates common Personnel Department costs based on the number of employees. Space occupancy and employee data are as follows: $\begin{array}{lcccc}&\text { Building } & \text { Personnel } & \text { Dept.P1 } & \text { Dept. P2 }\\\text { Space occupied } & 2,000 \mathrm{ft} & 10,000 \mathrm{ft} . & 120,000 \mathrm{ft} & 70,000 \mathrm{ft} \\\text { Employees } & 6 & 10 & 80 & 50\end{array}$ If McHugh Company uses the sequential allocation method and the support department with the highest percentage of interdepartmental services is allocated first, the ratio representing the portion of Personnel Department costs allocated to Department P2 is

• A)50/130.
• B)90/140.
• C)50/140.
• D)50/146.

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Definitions:

Barriers To Entry

Obstacles that make it difficult for new competitors to enter a market, protecting existing firms from new entrants.

Scarce Resource

A resource with limited availability in comparison to the desired use which exceeds its supply in an economic environment.

Technological Superiority

Having more advanced and efficient technology compared to competitors, often leading to a competitive advantage.

Economies Of Scale

Cost advantages that enterprises obtain due to their scale of operation, leading to cost per unit of output decreasing with increasing scale.