Abound 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

Quizplus · Accepted Answer

To allocate costs from Department S2, we need to use the reciprocal of the percentage of services provided by S2 to each department. So the allocation percentages for S1, X, and Y are:

- S1: 6% / 10% = 60%
- X: 6% / 50% = 12%
- Y: 6% / 44% = 13.64% (rounded)

Using these percentages, we can allocate the costs from S2 as follows:

- S1: 0.60 * $8,000 = $4,800
- X: 0.12 * $105,000 = $12,600
- Y: 0.1364 * $97,500 = $13,255

The total cost allocated from S2 is therefore:

$4,800 + $12,600 + $13,255 = $30,655

Therefore, the best answer is B: $9,557. This is the portion of S2's direct department costs that are allocated directly to S1 (35%) and X (50%), without going through S1 again.

The other choices are not correct because:

- A) $8,000 is simply S2's own direct department costs, without any allocations.
- C) $900 is the portion of S2's costs allocated to S1 (6% * $15,000), but this only represents a small portion of the total allocated costs from S2.
- D) $15,573 is the portion of S1's costs allocated to S2 (6% * $15,000) plus the portion of S2's costs allocated to S1 (60% * $8,000), but this is not the total allocated costs from S2.

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