Russet Company Has Two Service Departments and Two Producing Departments

question 107

Multiple Choice

Russet Company has two Service Departments and two Producing Departments. Budgeted costs and budgeted activity in the various departments for the most recent year are presented below:
$\begin{array} {| l | r | r | r | r | } \hline & \begin{array} { r } \text { Custodial } \\\text { Services }\end{array} & \text { Cafeteria } & \begin{array} { r } \text { Cutting } \\\text { Department }\end{array} & \begin{array} { r } \text { Assembly } \\\text { Department }\end{array} \\\hline \text { Overhead Costs } & \$ 252,000 & \$ 140,000 & \$ 600,000 & \$ 900,000 \\\hline \begin{array} { l } \text { Square Metres of Space } \\\text { Occupied }\end{array} & 1,000 & 2,000 & 8,000 & 10,000 \\\hline \text { Number of Employees } & 20 & 30 & 150 & 200 \\\hline \text { Machine Hour } & & & 40,000 & 60,000 \\\hline\end{array}$ Service Department costs are allocated to Producing Departments with the costs of Custodial Services allocated first on the basis of square metres of space occupied. The costs of the Cafeteria are allocated on the basis of number of employees. Predetermined overhead rates in the Cutting and Assembly departments are based on machine hours. Round all calculations to the nearest dollar.


- Under the direct method of allocation,what would be the amount of Custodial Services cost allocated to the Cutting Department?

• A) $0.
• B) $96,000.
• C) $100,800.
• D) $112,000.

---

Definitions:

Resource Constraints

Limitations in the availability of resources such as finances, materials, and human capital that can affect an organization's ability to achieve its goals.

Short-termism

A mindset or approach prioritizing short-term gains over long-term goals and strategies.

Immediate Returns

Earnings or benefits that are received quickly or immediately after an investment or action is made.

Capitalist

An economic system where private individuals own and control property and businesses, operating them for profit.