Cordner Corporation has two production departments, P1 and P2, and two service departments, S1 and S2. Direct costs for each department and the proportion of service costs used by the various departments for the month of July are as follows:
$$\begin{array}{r}
{ \text { Proportion of Services Used by: } } \
\begin{array} { c l c c c c }
\text { Department } & \text { Direct costs } & \text { S1 } & \text { S2 } & \text { P1 } & \text { P2 } \
\text { S1 } & \$ 60,000 & & 0.70 & 0.10 & 0.20 \
\text { S2 } & \$ 100,000 & 0.20 & & 0.30 & 0.50 \
\text { P1 } & \$ 160,000 & & & & \
\text { P2 } & \$ 140,000 & & & &
\end{array}\end{array}$$
-
Under the step-method of cost allocation, the amount of costs allocated from S2 to P2 would be:
A) $88,750.
B) $50,000.
C) $62,500.
D) $53,250.

Question

Cordner Corporation has two production departments, P1 and P2, and two service departments, S1 and S2. Direct costs for each department and the proportion of service costs used by the various departments for the month of July are as follows:
$$\begin{array}{r}
 { \text { Proportion of Services Used by: } } \
  \begin{array} { c l c c c c } 
\text { Department } & \text { Direct costs } & \text { S1 } & \text { S2 } & \text { P1 } & \text { P2 } \
\text { S1 } & \$ 60,000 & & 0.70 & 0.10 & 0.20 \
\text { S2 } & \$ 100,000 & 0.20 & & 0.30 & 0.50 \
\text { P1 } & \$ 160,000 & & & & \
\text { P2 } & \$ 140,000 & & & &
\end{array}\end{array}$$
-
Under the step-method of cost allocation, the amount of costs allocated from S2 to P2 would be:
A) $88,750.
B) $50,000.
C) $62,500.
D) $53,250.

Quizplus · Accepted Answer

The correct answer is A because the amount of costs allocated from S2 to P2 under the step-method of cost allocation is $88,750. This is calculated as follows:S2 costs allocated to P2 = S2 direct costs * Proportion of S2 costs used by P2= $100,000 * 0.50= $50,000S1 costs allocated to P2 = S1 direct costs * Proportion of S1 costs used by P2= $60,000 * 0.20= $12,000Total costs allocated from S2 to P2 = S2 costs allocated to P2 + S1 costs allocated to P2= $50,000 + $12,000= $62,000Total costs allocated from S2 to P2 = $62,000 * (1 + 0.30)= $62,000 * 1.30= $80,600Therefore, the amount of costs allocated from S2 to P2 under the step-method of cost allocation is $80,600.

Cordner Corporation Has Two Production Departments, P1 and P2, and Two