Commercial Products, Inc., has two production departments (P1 and P2) and three service departments (S1, S2, and

Question:

Commercial Products, Inc., has two production departments (P1 and P2) and three service departments (S1, S2, and S3). Service department costs are allocated to production departments using the direct method. The $400,000 costs of department S1 are allocated based on the number of employees in each production department. The $600,000 costs of department S2 are allocated based on the square footage of space occupied by each production department. The $300,000 costs of department S3 are allocated based on hours of computer support used by each production department. Information for each production department follows.

Number of Square Feet Production Department Computer Support Hours Employees Occupied 20 10,000 15,000 25,000 3,000 P1 P

Required:

a. Calculate the service department costs allocated to each production department.

b. In general, does U.S. GAAP allow for the allocation of service department costs to production departments for the purpose of valuing inventory?

GAAP
Generally Accepted Accounting Principles (GAAP) is the accounting standard adopted by the U.S. Securities and Exchange Commission (SEC). While the SEC previously stated that it intends to move from U.S. GAAP to the International Financial Reporting Standards (IFRS), the...