Rust Company has two support departments (S1 and S2) and two producing departments (X and Y).Department S1 serves Departments S2, X, and Y in the following percentages, respectively: 10%, 35%, 55%.Department S2 serves Departments S1, X, and Y in the following percentages, respectively: 6%, 50%, and 44%.Direct department costs for S1, S2, X, and Y are $15,000, $8,000, $105,000, and $97,500, respectively.
-What are the total costs to be allocated from Department S2?

Question

Rust Company has two support departments (S1 and S2) and two producing departments (X and Y).Department S1 serves Departments S2, X, and Y in the following percentages, respectively: 10%, 35%, 55%.Department S2 serves Departments S1, X, and Y in the following percentages, respectively: 6%, 50%, and 44%.Direct department costs for S1, S2, X, and Y are $15,000, $8,000, $105,000, and $97,500, respectively. 
-What are the total costs to be allocated from Department S2?

Quizplus · Accepted Answer

First, we can allocate the direct department costs using the percentages given:

- S1: 10% of $105,000 + 10% of $97,500 = $10,500 + $9,750 = $20,250
- S2: 6% of $15,000 + 50% of $105,000 + 44% of $97,500 = $900 + $52,500 + $42,900 = $96,300
- X: 35% of $15,000 + 50% of $8,000 + 55% of $105,000 + 50% of $97,500 = $5,250 + $4,000 + $57,750 + $48,750 = $115,750
- Y: 55% of $15,000 + 44% of $8,000 + 44% of $105,000 + 50% of $97,500 = $8,250 + $3,520 + $46,200 + $48,750 = $106,720

Next, we need to allocate the support department costs. We can use the reciprocal method:

- Allocate S1's costs to S2, X, and Y: 
    - S2: $20,250 x (6%/(6%+50%+44%)) = $1,950
    - X: $20,250 x (35%/(6%+50%+44%)) = $7,350
    - Y: $20,250 x (55%/(6%+50%+44%)) = $11,950
- Allocate S2's costs to S1, X, and Y:
    - S1: $8,000 x (10%/(10%+35%+55%)) = $900
    - X: $8,000 x (50%/(10%+35%+55%)) = $4,000
    - Y: $8,000 x (44%/(10%+35%+55%)) = $3,557

Therefore, the total costs to be allocated from Department S2 are:

$96,300 (direct costs) + $1,950 (allocated costs from S1) + $4,000 (allocated costs from S2 to X) + $3,557 (allocated costs from S2 to Y) = $105,807

Rounded to the nearest dollar, the answer is C) $9,557.

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