Great Ape Glassworks manufactures glass used for the screens on smartphones. It has two producing departments, P1 and P2, and only one service department, S1. The company is able to track overhead to the various departments but wants to allocate the service department costs to the producing departments. However, the company is not sure which of the multiple allocation bases should be selected. The data it collected appear in the table below:

Required

1. Determine the total estimated overhead cost for each of the producing departments after allocating the cost of the service department:

a. Using employee headcount as the allocation base.

b. Using occupied space as the allocation base.

c. Using productive capacity as the allocation base.

d. Using the 3-year average use as the allocation base.

2. Which of the four proposed allocation bases would you recommend and why?

Transcribed Image Text:

Overhead Assigned Department P1 $150,000 P2 S1 Potentlal allocatlon base Employee headcount Space used (In square feet) Productive capacity (In units) 3-year average percentage ofS1 output used 250,000 P1 60 2,000 P2 20 6,000 75,000 40% 50,000 60%