Question

Mervon Company has two operating departments: mixing and bottling. Mixing occupies 22,000 square feet. Bottling occupies 18,000 square feet. Indirect factory costs include maintenance costs of $200,000. If maintenance costs are allocated to operating departments based on square footage occupied, determine the amount of maintenance costs allocated to each operating department.

Short answer

Mixing Department:$110,000

Bottling Department:$90,000

Step-by-step solution

Step-by-Step SolutionStep 1: Definition of Maintenance Cost

The cost incurred to maintain the working condition of the assets held by the business entity is known as maintenance cost. Such costs are associated with fixing errors andbreak-downs of assets.

Allocation of maintenance cost

Department	Space occupied	/	Total space	X	Maintenance cost	=	Allocated cost
Mixing	22,000	/	40,000	X	$200,000	=	$110,000
Bottling	18,000	/	40,000	X	$200,000	=	$90,000
Total	40,000						$200,000