Question

Stronghold, Inc., operates a brochure business at two different locations. Stronghold, Inc., has one support department that is responsible for cleaning, service, and maintenance of its printing equipment. The costs of the support department are allocated to each brochure center on the basis of total brochures made. During the first month, the costs of the support department were expected to be $400,000. Of this amount, $120,000 is considered a fixed cost. During the month, the support department incurred actual variable costs of $256,000 and actual fixed costs of $144,000. Normal and actual activity (brochures made) are as follows: Brochure Center 1 Brochure Center 2 Normal activity (brochures) 1,200,000 800,000 Actual activity (brochures) 1,000,000 880,000 Support department costs NOT allocated to the two brochure centers are: a. $16,800. b. $44,000. c. $19,680. d. $8,000.

Answer 1

Answer : a. $16800

Calculated as

Calculation of predetermined overhead rates:-
Total Expected Cost	400000
Less: Fixed Cost	120000
Variable Cost	280000
Predetermined Overhead rate
Normal activity total
Brochure centre 1	1200000	Brochure
Brochure centre 2	800000	Brochure
Total	2000000
Calculation of predetermined overhead rate
For Fixed Overhead
=Fixed overhead/Total Normal Activity Brochure
=120000/2000000	=0.06	Per Brochure
For Variable Overhead
=Variable overhead/Total Normal Activity Brochure
=280000/2000000	=0.14	Per Brochure

Allocation of overhead to Brochure Centres
Allocation of Fixed overhead
(Fixed overhead will be allocated on the basis of Normal Activity)
=Normal activity brochure x fixed overhead Rate
For Brochure centre 1 = 1200000*.06	$     72,000
For Brochure centre 2= 800000*.06	$     48,000
Allocation of Variable overhead
(Variable overhead will be allocated on the basis of Actual Activity)
=Actual activity brochure x Variable overhead Rate
For Brochure centre 1 = 1000000*.14	$ 1,40,000
For Brochure centre 2= 880000*.14	$ 1,23,200
Total overhead Allocated	$ 3,83,200
Actual overhead incurred	$ 4,00,000
Overhead not allocated to Brochure centre = $400000-$383200	$     16,800

Feel free to ask any clarification, if required. Please provide feedback by thumbs up, if satisfied. It will be highly appreciated.

Thank you.