Motorcade Company has three service departments (S1, S2, and S3) and two product
ID: 2464425 • Letter: M
Question
Motorcade Company has three service departments (S1, S2, and S3) and two production departments (P1 and P2). The following data relate to Motorcade's allocation of service department costs:
Budgeted Costs
Nbr of Employees
S1
$3,040,000
75
S2
2,060,000
50
S3
1,000,000
25
P1
150
P2
225
Service department costs are allocated by the direct method. The number of employees is used as the allocation base for all service department costs
Calculate the total service department cost allocated to production department P1
Motorcade Company has three service departments (S1, S2, and S3) and two production departments (P1 and P2). The following data relate to Motorcade's allocation of service department costs:
Budgeted Costs
Nbr of Employees
S1
$3,040,000
75
S2
2,060,000
50
S3
1,000,000
25
P1
150
P2
225
Service department costs are allocated by the direct method. The number of employees is used as the allocation base for all service department costs
Calculate the total service department cost allocated to production department P1
Explanation / Answer
Production Departments are the main Departments for Production and Service Departments are the subsidiary for the Production Departments.
So, Service Departments costs are allocated to Production Departments
Here
As the Menthod of allocation of Service Deparments aExpenses is Direct Method and the Base is number of employees in the Production Deparment
Total Budgeted Expenses for the Srvice Departments= $3040000+$2060000+$100000= $5200000.
As the Basis of allocation is number of Employees working in the production Department
Total Service Department Cost allocated to Production Department P1=
= (Total Expenses of Serice Deparment/Total number of Emplyees in the Production Deparment) *Employees working in Production Department
=($5200000/(150+225))*150=$2080000
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