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:

Equilibrium Wage Rate

The wage rate at which the quantity of labor supplied is equal to the quantity of labor demanded in the market.

Minimum Wage Rate

The lowest legally allowed hourly payment for workers, established to ensure a minimum standard of living for employees.

Economic Rent

Income earned from the use of a resource that is in fixed supply; a payment to a factor of production in excess of the cost needed to bring that factor into production.

Nominal

Referring to a value expressed in current prices, without adjustment for inflation, as opposed to real values which are adjusted for inflation.