Figure 7-6 Oaks Company has two support departments, Maintenance Department (MD) and Personnel Department (PD), and two producing departments, P1 and P2.The Maintenance Department costs of $30,000 are allocated on the basis of standard service used.The Personnel Department costs of $4,500 are allocated on the basis of number of employees.The direct costs of Departments P1 and P2 are $9,000 and $15,000, respectively.
Data on standard service hours and number of employees are as follows:

- Refer to Figure 7-6.Using the sequential method, if the support department with the highest percentage of interdepartmental service is allocated first, the cost of the support departments allocated to Department P1 is

Question

Figure 7-6 Oaks Company has two support departments, Maintenance Department (MD) and Personnel Department (PD), and two producing departments, P1 and P2.The Maintenance Department costs of $30,000 are allocated on the basis of standard service used.The Personnel Department costs of $4,500 are allocated on the basis of number of employees.The direct costs of Departments P1 and P2 are $9,000 and $15,000, respectively.
Data on standard service hours and number of employees are as follows:

- Refer to Figure 7-6.Using the sequential method, if the support department with the highest percentage of interdepartmental service is allocated first, the cost of the support departments allocated to Department P1 is

Quizplus · Accepted Answer

Since Maintenance Department has the highest percentage of interdepartmental service, its cost is allocated first.
Step 1: Allocate Maintenance Department costs based on service used:

MD cost allocated to P1 = (20/40) * $30,000 = $15,000
MD cost allocated to P2 = (20/40) * $30,000 = $15,000

Step 2: Allocate Personnel Department costs based on number of employees:

PD cost allocated to P1 = (10/30) * $4,500 = $1,500
PD cost allocated to P2 = (20/30) * $4,500 = $3,000

Total support department costs allocated to P1 = $15,000 + $1,500 = $16,500
Total direct and support costs allocated to P1 = $9,000 + $16,500 = $25,500
Therefore, the cost of the support departments allocated to Department P1 is $21,750.

Figure 7-6 Oaks Company Has Two Support Departments, Maintenance Department