EXERCISE 6-8. Allocation of Service Department Costs [LO 1] The Marvin Company h
ID: 2567830 • Letter: E
Question
EXERCISE 6-8. Allocation of Service Department Costs [LO 1] The Marvin Company has three service departments, S1, S2, and S3, and two production departments, P1 and P2. The following data relate to Marvin’s allocation of service department costs:
Service department costs are allocated by the direct method. The number of employees is used as the allocation base for all service department costs.
a. Allocate service department costs to production departments.
b. Calculate the total service department cost allocated to each production department.
Please show all steps. Thank you.
Budgeted Costs $4,500,000 3,000,000 2,700,000 Number of Employees S1 S2 S3 P1 P2 90 60 40 200 300Explanation / Answer
a) Budgeted costs production department S1 S2 S3 P1 P2 cost 4,500,000 3,000,000 2,700,000 S1 in the ratio of 2:3 -4,500,000 1800000 2700000 S2 in the ratio of 2:3 -3,000,000 1200000 1800000 S3 in the ratio of 2:3 -2,700,000 1350000 1620000 total cost allocated 0 0 0 4350000 6,120,000 b) cost allocated to P1 4,350,000 cost allocated to P2 6,120,000 (ratio = 200:300)
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