Westmore Company Has Two Service Departments and Two Operating Departments

question 150

Multiple Choice

Westmore Company has two Service Departments and two Operating Departments. Budgeted costs and other data relating to these departments are presented below: $\begin{array} { | l | r | r | r | r | } \hline & \begin{array} { r } \text { Building \& } \\\text { Grounds }\end{array} & \text { Personnel } & \text { Operating A} & \text { Operating B } \\\hline \text { Departmental costs } & \$ 54,000 & \$ 200,000 & \$ 650,000 & \$ 800,000 \\\hline \text { Square Metres Occupied } & 1,000 & 3,000 & 12,000 & 15,000 \\\hline \text { Number of Employees } & 10 & 5 & 45 & 55 \\\hline \text { Direct Labour Hours } & & & 76,000 & 92,000 \\\hline\end{array}$ The costs of Building & Grounds are allocated first on the basis of square metres of space occupied. Personnel costs are allocated on the basis of number of employees. The departmental costs for the Operating Departments are overhead costs. Predetermined overhead rates in the Operating Departments are calculated on the basis of direct labour hours.



- Assume again that the company uses the step-down method.What would be the total amount of cost allocated from the two Service Departments to the Operating Departments for the year?

• A) $254,000.
• B) $850,000.
• C) $1,450,000.
• D) $1,704,000.

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Definitions:

External Equity Financing

This term refers to the process through which a company raises capital by selling its shares to external investors, outside the existing shareholders or company insiders.

Internal Growth Rate

The maximum growth rate a firm can achieve without external financing, based on reinvestment of its own earnings.

Financial Planning

The process of estimating the capital required and determining its competition. It is the process of framing financial policies in relation to procurement, investment and administration of funds of an enterprise.

Financing

The process of supplying capital for company operations, acquisitions, or investments.