The Longhorn Company has four departments in its factory with two service departments, S1 and S2, and
Question:
The Longhorn Company has four departments in its factory with two service departments, S1 and S2, and two production departments, P1 and P2 each of which produces a single product. The current costs of each department are:
Service Departments | Production Departments |
S1 $84,000 | P1 $90,000 |
S2 $63,000 | P2 $120,000 |
The distribution and consumption of services is given in the following table:
Services provided to: | ||||
S1 | S2 | P1 | P2 | |
Services provided by: | ||||
S1 | - | 40% | 25% | 35% |
S2 | 10% | - | 70% | 20% |
Required:
a) Allocate service department costs to production departments using the direct method.
b) Allocate service department costs to production departments using the step-down method.
c) Allocate service department costs to production departments using the reciprocal method to the nearest dollar.