Motorcade Company has three service departments (S1, S2, and S3) and two product
ID: 2710164 • 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
$3,320,000
75
S2
2,600,000
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
$3,320,000
75
S2
2,600,000
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
Explanation / Answer
Allocation cost per production employee:
= Total service department costs÷Number of production department employees
= ($3,320,000+$2,600,000+$1,000,000)÷(150+225)
= $18,453.33 per employee
Costs allocated to department P1:
= $18,453.33×150
= $2,768,000
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