Question

A firm has two service departments (A and B) and two production departments (X and Y)....

A firm has two service departments (A and B) and two production departments (X and Y). The firm allocates service department cost using the direct method.

Service Department A's services are consumed as follows.

  • 20% used by Service Department B.
  • 20% used by Production Department X.
  • 60% used by Production Department Y.

Service Department A has $625,907 costs for the period and Production Department Y has $1,115,246 costs for the period.

What is Department Y's total cost after service department costs have been allocated (round final answer to nearest cent if necessary)?

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Answer #1

Under direct method the percentage of allocation of cost of service department is directly allocated to the production department in the ratio of their allocation of percentage.

Cost of service department A = 625,907

20% used by Department X

60% used by Department Y

Total 80%

Cost to be allocated to Department Y

= 625,907*60/80

= $469,430.25

Department Y cost = $1,115,246

Total cost of Department Y after allocation of Service department A cost will be

= 1,115,246 + 469,430.25

= $ 1,584,676.25

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