1 answer

Consider the following information: A company has 5 departments; M and N (both operating) and R,...

Question:

Consider the following information: A company has 5 departments; M and N (both operating) and R, S and T (all three supporting).

Total secondary allocation (including own indirect costs) for department M and N is 250 and 300, respectively.

Primary allocation is 200 and 280 for department M and N, respectively.

Allocation bases to assign indirect costs to products are kg of paint (25kg) for department M and number of units produced (10units) for department N. What is the indirect cost rate for the M department?

Select one:

a. €10/kg

b. €10/unit

c. €18/kg

d. €8/kg


Answers

Answer

Option C i.e. Euro 18

Calculations:

Department M Department N
Primary allocation €                200 €               280
(+) Secondary allocation €                250 €               300
(=) Total costs €                450 €               580
(/) Allocation base                       25                      10
(=) Cost rate €                   18 €                 58

Clearly, option c is correct and other options are incorrect.

.

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