Landmark Coal operates a mine. Motorcade Company has three service departments (
ID: 2717532 • Letter: L
Question
Landmark Coal operates a mine. 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 2,220,000 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
Total cost allocated to P1 is $2,616,000
Service Department Production Department Particulars S1 S2 S3 TOTAL P1 P2 Grand Total Number of employees 75 50 25 150 225 525 Actual Costs $3,320,000 $2,220,000 $1,000,000 $6,540,000 Primary AllocationDistribution of costs to all departments $934,286 $622,857 $311,429 $1,868,571 $1,868,571 $2,802,857 Workings : = 75/525 x 6540000 = 50/525 x 6540000 = 25/525 x 6540000 = 150/525 x 6540000 = 225/525 x 6540000 Secondary Distribution
Service Department costs on Production Departments Distribution of $1868571 in the
ratio of 150 : 225 $747,429 $1,121,143 $1,868,571 Total Cost =
Primary + Secondary $2,616,000 $3,924,000
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