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Question 1 (1 point) Motorcade Company has three service departments (S1, S2, and S3) and two...

Question 1 (1 point)

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

$3,360,000

75

S2

2,120,000

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

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Answer #1

Total service department costs = $3,360,000 + $2,120,000 + $1,000,000 = $6,480,000

Total no. of employees of production departments = 150 + 225 = 375

Cost allocation to production department P1 = Total costs x (No. of employees of P1 department / Total no. of employees of production departments)

or, Cost allocation to production department P1 = $6,480,000 x (150 / 375) = $2,592,000

Cost allocation to production department P2 = $6,480,000 x (225 / 375) = $3,888,000

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