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Mervon Company has two operating departments: mixing and bottling. Mixing occupies 27,235 square feet. Bottling occupies 14,665 square feet. Indirect factory costs include maintenance costs of $246,000. If the maintenance costs are allocated to operating departments based on square footage occupied, determine the amount of maintenance costs allocated to each operating department.

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Answer:

The amount of maintenance costs allocated to each operating department is $159,900 to mixing and $86,100 to bottling

Explanation:

In order to determine the amount of maintenance costs allocated to each operating department we would have to calculate first the percentage of area for each deparment as follows:

Particular      Area in square feet         %

mixing                  27,235                          65

bottling                14,665                           35

Total Area           41,900                          100

Therefore, if the maintentance cost is $246,000, the amount of maintenance costs allocated to each operating department is as follows:

Particular                %                   Allocation of expense

mixing                  65                          159,900=246,000×65/100

bottling                35                           86,100=246,000×35/100

                           100                          246,000

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