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Allocation of Service Department Costs

Allocation of Service Department Costs

Marvin Company has three service departments (S1, S2, S3) and two production departments (P1, P2). The following data relate to Marvin's allocation of service department costs:

Budgeted Costs Number of Employees
S1 $3,000,000 75
S2 2,000,000 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.

Required

a. Allocate service department costs to production departments.

Service Cost Allocated to
Department P1 P2
S1 $ $
S2 $ $
S3 $ $

b. Calculate the total service department cost allocated to each production department.

Service Cost Allocated to
Department P1 P2
Total cost $ $

Solution Preview

a. In the direct method the service department cost is directly allocated to production department without being allocated to other service departments
The allocation base is number employees
Employees in ...

Solution Summary

The solution explains how to allocate service department costs to production departments

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