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 allocation, the total amount of service costs allocated to producing departments would be:
A) $118,000.
B) $160,000.
C) $140,000.
D) $40,000.

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 allocation, the total amount of service costs allocated to producing departments would be:
A) $118,000.
B) $160,000.
C) $140,000.
D) $40,000.

Quizplus · Accepted Answer

The step method allocates service department costs to other service departments first, then to production departments. S1 costs are allocated to S2, P1, and P2. Then, S2 costs (including those allocated from S1) are allocated to P1 and P2. The total allocated to P1 and P2 is $160,000.

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