Federated COmpany has two service departments (S1 and S2) and two producing depa

Question

Federated COmpany has two service departments (S1 and S2) and two producing departments (A and B). Department S1 serves Departments S2, A and B in the following percentages, respectively: 10%, 35% and 55%. Department S2 serves Departments S1, A and B in the following percentages, respectively: 0%, 60% and 40%. Direct department costs for S1, S2, A and B are $30,000, $16,000, $210,000 and $195,000, respectively. If Federated uses the step method of allocating service department costs beginning with Department S1, what is the total amount of cost that will be allocated from S2 to Department A?

A. $6,400
B. $7,600
C. $11,400
D. $0

Explanation / Answer

Ans : Total Cost which will allocated from S2 to DEpartment A is $ 11400.

Calculation:

                                        S1    S2    A    B

Direct Department Cost    30000    16000     210000 195000

Allocation from S1              -         3000       10500    16500

in the ratio 10:35:55

Allocation from Department S2

$ 19000* in the ratio of 60:40                   11400      7600

Total Allocation from S2 = 11400

* 16000+3000 = 19000

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