Vota Clinic Uses the Direct Method to Allocate Service Department

question 51

Multiple Choice

Vota Clinic uses the direct method to allocate service department costs to operating departments. The clinic has two service departments, Personnel and Support, and two operating departments, Prenatal and Pediatrics. Personnel Department costs are allocated on the basis of employee hours and Support Department costs are allocated on the basis of space occupied in square feet. The total Pediatrics Department cost after the allocations of service department costs is closest to:

• A)$432,159
• B)$428,724
• C)$431,400
• D)$422,160

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Definitions:

Break-even

The point at which total revenues equal total costs, resulting in neither profit nor loss for the business.

Margin of Safety

The difference between actual or projected sales and the break-even point. It indicates the amount of sales decline a business can endure before it starts incurring losses.

Variable Costs

Costs that change in proportion to the level of activity or production volume.

Fixed Costs

Costs that do not vary with the level of output or sales, such as rent, salaries, and insurance premiums.