Question

Cordner Corporation has two production Departments: P1 and P2 and two service departments: S1 and S2. Direct costs for each department and the proportion of service costs used by the various departments for the month of July are as follows: Proportion of Services Used S1 Department S1 S2 P1 P2 Direct costs $180,000 $162.000 $ 197000 $140000 S2 0.70 P1 0.10 0.300.50 P2 0.20 0.20 Under the step-method of cost allocation, the amount of costs allocated from $2 to P2 would be_________________.a. $81000b. $84 250c. $180,000d. $93.500

Answer 1

Solution:

S1  $180,000 is allocated 70% to S2 or $126,000 ( 0.7 * 180,000 )

S2  total is $162,000 + $126,000 = $288,000

S2  $126,000 is allocated 19.7% to P2 or $81000

Under the step-method of cost allocation,

the amount of costs allocated from $2 to P2 would be $81000