Boa CorpUses the Direct Method to Allocate Service Department Overhead Costs

question 56

Multiple Choice

Boa Corp.uses the direct method to allocate service department overhead costs to operating departments.Information for the month of June follows:
$\begin{array}{|l|r|r|} \hline& \begin{array}{r}\text { Service } \\\text { Maintenance }\end{array} & \text { Departments Utilities } \\\hline \text { Departmental cost incurred } & \$ 20,000 & \$ 10,000 \\\hline \text { Service provided to departments: } & & \\\hline \text { Maintenance } & & 10 \% \\\hline \text { Utilities } & 20 \% & \\\hline \text { Operating - A } & 40 \% & 30 \% \\\hline \text { Operating - B } & 40 \% &60 \% \\\hline\end{array}$
What would be the amount of maintenance department costs allocated to Operating Department A for June?

• A) $8,000.
• B) $8,800.
• C) $10,000.
• D) $20,000.

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Definitions:

Long-Run Supply

A period sufficient for all inputs to production, including capital, to be varied, allowing for adjustments to changes in demand or technology.

Average Total Cost

The total cost of production divided by the total quantity produced, representing the per-unit cost of production.

Long-Run Equilibrium

A state in which all factors of production and economic variables are in balance, with no external pressures forcing change.

Demand Decreases

A situation where the quantity of a product or service that consumers are willing to buy at a given price drops, often due to changes in preferences, income, or substitutes.