Question

Brandeis 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 by: Department Direct costs S1 S2 P1 P2 S1 $62,000 0.70 0.10 0.20 S2 $102,000 0.20 0.30 0.50 P1 $162,000 P2 $142,000 Under the step-method of cost allocation, the amount of costs allocated from S2 to P2 would be: $90,875. $51,000. $63,750. $53,950.

Answer 1

Answer:

a. $90,875

Explanation:

Provided information we have,

Individually allocated cost

S1  = $62,000    S2 = $102,000     P1 = $162,000         P2 = $142,000

Firstly under step method cost allocation will be from S1 to S2, P1, P2

Ratio = 0.7 : 0.1: 0.2

Thus allocated to S2 = $62,000 $\times$ 0.7 = $43,400

P1 = $62,000 $\times$ 0.1 = $6,200

P2 = $62,000 $\times$ 0.2 = $12,400

Total cost of S2 = $102,000 + $43,400 = $145,400

Ratio between S1: P1: P2 = 0.2:0.3:0.5

Amount allocated to P1 =  $145,400 $\times$ $\frac{0.3}{0.8}$

= $54,525

Amount allocated to P2 =  $145,400 $\times$ $\frac{0.5}{0.8}$

= $90,875

Therefore, correct option is

a. $90,875