Question

Support Department Cost Allocation—Direct Method Yo-Down Inc. produces yogurt. Information related to the company’s yogurt production...

Support Department Cost Allocation—Direct Method

Yo-Down Inc. produces yogurt. Information related to the company’s yogurt production follows:

Production
Department 1		 Production
Department 2		 Production
Department 3
Support Department 1 cost driver 1,200       300       500      

Support Department 1’s costs total $150,000. Using the direct method of support department cost allocation, determine the costs from Support Department 1 that should be allocated to each production department.

Production
Department 1		 Production
Department 2		 Production
Department 3
Support Department 1 cost allocation $ $ $
Business   Accounting   
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Answer #1

SOLUTION

Support department total cost drivers = Production Department 1 + Production Department 2 + Production Department 3

= 1,200 + 300 + 500 = 2,000

Support Department 1 allocation -

Production Department 1 - $150,000 * 1,200 / 2,000 = 90,000

Production Department 2 - $150,000 * 300 / 2,000 = 22,500

Production Department 3 - $150,000 * 500 / 2,000 = 37,500

Production Department 1 Production Department 2 Production Department 3
Support Department 1 cost allocation 90,000 22,500 37,500
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