Chapter 7, Problem 28E

Minor Co. has a job order cost system and applies overhead based on departmental rates. Service Department 1 has total budgeted costs of $168,000 for next year. Service Department 2 has total budgeted costs of $280,000 for next year. Minor allocates service department costs solely to the producing departments.

Service Department 1 cost is allocated to producing departments on the basis of machine hours. Service Department 2 cost is allocated to producing departments on the basis of direct labor hours. Producing Department 1 has budgeted 8,000 machine hours and 12,000 direct labor hours. Producing Department 2 has budgeted 2,000 machine hours and 12,000 direct labor hours. What is the total cost allocation from the two service departments to Producing Department 1?

1. a. $173,600
2. b. $140,000
3. c. $134,400
4. d. $274,400