Question

The IT department's cost data is as follows:

Estimated Costs

Fixed Costs $ 500,000

Variable, ($300 per hour) $600,000

Total $1,100,000

IT Departmental Usage:   

Hours Department A Department B

Budgeted 1,100 900

Actual 1,300 1,200

The fixed costs are allocated based on relative budgeted hours with variable costs applied based on actual hours. Department A will be allocated total overhead of:

A. $715,000

B. $390,000

C. $605,000

D. $665,000

Answer 1

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	Correct option is: D. $6,65,000
	Workings:
	Hours	Department A	Department B	Total
	Budgeted	1,100	900	2,000
	Actual	1,300	1,200	2,500
	Variable cost per hour	=	$                   300
	Fixed cost per hour	=	$500000 / 2000 hours
		=	$                   250
	Overhead Cost	Department A	Department B
(Actual hours X $300)	Variable cost	$         3,90,000	$          3,60,000
(Budgeted hours X $250)	Fixed Cost	$         2,75,000	$          2,25,000
	Total	$         6,65,000	$          5,85,000