The cost allocated to the Assembly Department from the Cafeteria Department was $125,000, thus, option A is the correct answer.
Consider the expense incurred by the cafeteria and the allocation basis to be used for calculating the cost allotted to the assembly department from the cafeteria department under the direct approach.
Only the Cutting and Assembly Departments would get funding for the service departments' costs under the direct method.
The cafeteria department spent $500,000, which would be distributed according to how many employees were fed for 80 hours (60 for Cutting and 20 for Assembly). The computation looks like this.
-Cafeteria's cost allocated to Assembly = Cafeteria's costs × Number of employees served in Assembly / Total number of employees served in Cutting and Assembly
-Cafeteria's cost allocated to Assembly = $ 500,000 ×20 / 80 = $125,000
Hence, The cost allocated to the Assembly Department from Cafeteria Department was $125,000
In contrast to the reciprocal approach, which is the most accurate because it distributes funds to every department that benefits from the support departments' services, the direct method of cost allocation is the simplest because the calculation is straightforward and does not require algebraic equations.
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