Question

Northstar Company has two operating divisions—Machine Tools andSpecial Products. The company has a maintenance department thatservices the equipment in both divisions. The costs of operatingthe maintenance department are budgeted at $83,000 per month plus$0.6 per machine hour. The fixed costs of the maintenancedepartment are determined by peak-period requirements. The MachineTools Division requires 60% of the peak-period capacity, and theSpecial Products Division requires 40%.

For October, theMachine Tools Division estimated that it would operate at 82,000machine hours of activity and the Special Products Divisionestimated that it would operate at 52,000 machine-hours ofactivity. However, due to labor unrest and an unexpected strike,the Machine Tools Division worked only 52,000 machine-hours duringthe month. The Special Products Division worked 52,000machine-hours as planned.

Cost records inthe maintenance department show that actual fixed costs for Octobertotaled $86,000 and that actual variable costs totaled $79,400.

Required:
1.	How much maintenance department cost should be charged to eachdivision for October? (Omit the "$" sign in yourresponse.)

	Machine Tools Division	SpecialProducts Division
Total costallocated	$	$

2.

Assume that the company follows the practice of allocating allmaintenance department costs incurred each month to the divisionsin proportion to the actual machine-hours recorded in each divisionfor the month. On this basis, how much cost would be allocated toeach division for October? (Omit the "$" sign in yourresponse.)

	Machine Tools Division	Special Products Division
Total costallocated	$	$

3.

Whether allocation method usedin part (2) above has problems?

	No
	Yes