Brandeis 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: Under the step-method of allocation,the total amount of service costs allocated to producing departments would be:

Question

Brandeis 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:  Under the step-method of allocation,the total amount of service costs allocated to producing departments would be:

Quizplus · Accepted Answer

According to the step-method of allocation, we allocate the service department costs to production departments in a specific order. Here, we allocate S1 costs first to the other departments and then allocate the remaining costs of S2.

Step 1: Allocate S1 costs
P1: 0.20 x $60,000 = $12,000
P2: 0.30 x $60,000 = $18,000
Total S1 cost allocated = $30,000

Step 2: Allocate remaining S2 costs
S2 cost to be allocated = $90,000 - $30,000 (cost already allocated in step 1) = $60,000

P1: 0.15 x $60,000 = $9,000
P2: 0.25 x $60,000 = $15,000
Total S2 cost allocated = $24,000

Therefore, total service cost allocated to production departments (P1 and P2) = $30,000 (S1) + $24,000 (S2) = $54,000

Hence, the correct option is B ($160,000).

Brandeis Corporation Has Two Production Departments: P1 and P2 and Two