Evergreen Company has two support departments (S1 and S2) and two producing departments (P1 and P2). Department S1 costs are allocated on the basis of number of employees, and Department S2 costs are allocated on the basis of space occupied expressed in square feet. Data on direct department costs, number of employees, and space occupied are as follows:
If Evergreen uses the direct method, the ratio representing the portion of Department S2 allocated to P1 is

Question

Evergreen Company has two support departments (S1 and S2) and two producing departments (P1 and P2). Department S1 costs are allocated on the basis of number of employees, and Department S2 costs are allocated on the basis of space occupied expressed in square feet. Data on direct department costs, number of employees, and space occupied are as follows:
 If Evergreen uses the direct method, the ratio representing the portion of Department S2 allocated to P1 is

Quizplus · Accepted Answer

Under the direct method, support department costs are allocated directly to producing departments without any allocations between support departments.

Therefore, the ratio representing the portion of Department S2 allocated to P1 would be:

S2 cost allocated to P1 / Total space occupied by both P1 and P2

Since S2 costs are allocated on the basis of space occupied, we need to determine the portion of total space occupied by P1.

According to the data provided, P1 occupies 4,000 square feet (2,000 by P1 and 2,000 by P2) and P2 occupies 6,000 square feet (2,000 by P1 and 4,000 by P2). Therefore, total space occupied is 10,000 square feet.

The portion of total space occupied by P1 is:

4,000 / 10,000 = 0.4

Therefore, the ratio representing the portion of Department S2 allocated to P1 is:

(0.4 x $6,000) / $6,000 = $2,400 / $6,000 = 1,500 / 4,000

Therefore, the answer is B.

Evergreen Company Has Two Support Departments (S1 and S2) and Two