Stevens Company Has Two Production Departments Called Assembly and Finishing

question 65

Multiple Choice

Stevens Company has two production departments called Assembly and Finishing.The maintenance department serves both production departments.Maintenance costs are allocated based on labor hours.Budgeted fixed costs for the maintenance department are $40,000.Budgeted variable costs for the maintenance department are $4.00 per labor hour.Other relevant data follow:
$\begin{array}{ll}&\text { Assembly }&\text { Finishing }\\\text { Capacity available }&\text { 18,000 labor hours } & 12,000 \text { labor hour: } \\\text { Capacity used }&\text { 15,000 labor hours } & 9,000 \text { labor hours }\end{array}$
Actual maintenance department costs:
$\begin{array}{ll}\text { Fixed } & \$ 36,000 \\\text { Variable } & \$ 100,000\end{array}$
The amount of fixed maintenance department costs allocated to the Assembly Department should be ________.

• A) $16,000
• B) $22,500
• C) $24,000
• D) $25,000

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Definitions:

Selling Price

The amount of money a buyer pays to purchase a product or service.

Absorption Costing

An accounting method that includes both variable and fixed manufacturing overhead costs in the cost of a product.

Cost-plus Pricing

A pricing strategy where the selling price is determined by adding a specific markup to a product's cost.

Return on Investment

A financial metric used to evaluate the efficiency or profitability of an investment, calculated by dividing net profit by the investment's cost.