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 \$649,160 costs for the period and Production Department Y has \$841,334 costs for the period.

What is Department Y's total cost after Department A's costs have been allocated (but before Department B's costs are allocated). Round final answer to nearest cent if necessary?

Department Y cost = 841,334

Service department A cost = 649,160

Under direct method the overhead cost of service department is to be allocated on the basis of percentage of production department.

Therefore overhead cost of department A will be allocated in the ratio = 20:60 between X and Y

Overhead cost allocated to department Y

= 649,160*60/80

= \$486,870

Total cost of department Y

= 841,334 + 486,870

= \$1,328,204

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