Question

Direct, sequential, and reciprocal allocation
Ming Company has two service departments (S1 and S2) and two production departments (P1 and P2). Last year, directly identified overhead costs were $255,000 for S1 and $320,000 for S2.
Information on the consumption of their services follows:

Supplying	User Departments
Departments	S1	S2	P1	P2
S1	500	1,200	6,000	1,300
S2	800	200	7,000	9,000

(a) Determine the service department costs allocated to the two production departments using the direct method.
Note: Round each rate to two decimal places before calculating the allocated amounts. Round answers to the nearest dollar.

	Rate			Total
	(rounded to 2 decimals)	Total P1	Total P2	(any diff due to rounding)
S1 allocation amount	Answer	Answer	Answer
S1 allocation amount	Answer	Answer	Answer
Total service department costs		Answer	Answer	Answer

(b) Determine the service department costs allocated to the two production departments using the sequential method beginning with the allocation of S1 department costs.
Note: Round each rate to two decimal places before calculating the allocated amounts. Round answers to the nearest dollar.

	Total allocated service
	department costs
P1	Answer
P2	Answer
Total (any diff due to rounding)	Answer

(c) Determine the service department costs allocated to the two production departments using the reciprocal method.

Note: Do not round your computations; however, round your final answers to the nearest dollar.

	Total allocated service
	department costs
P1	Answer
P2	Answer
	Answer

Answer 1

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a P1 Allocation of Service department costs on the basis of Direct Method Particulars Total Cost P2 S1 Cost Distribution $255,000 $209,589 $45,411 S2 Cost distribution $320,000 $140,000 $180,000 $575,000 $349,589 $225,411 S1 Cost Allocation Cost allocated to P1 = (Total S1 cost) x (P1 Consumption/P1 Consumption+P2 Consumption) = $255,000 (6,000/(6,000 + 1,300)) = $209,589 Cost allocated to P2 = (Total S1 cost) x (P2 Consumption/P1 Consumption+P2 Consumption) = $255,000 X (1,300/(6,000 + 1,300)) = $45,411 S2 Cost Allocation Cost allocated to P1 = (Total S2 cost) (P1 Consumption/P1 Consumption+P2 Consumption) = $320,000 x (7,000/(7,000 + 9,000)) = $140,000 Cost allocated to P2 = (Total S2 cost) x (P2 Consumption/P1 Consumption+P2 Consumption) = $320,000 x (9,000/(7,000 + 9,000)) = $180,000

P1 b Allocation of Service department costs on the basis of Sequential Method Particulars si S2 P2 TOTAL COST $255,000 $320,000 S1 Cost Distribution $36,000 $180,000 $39,000 S2 Cost Distribution ($356,000) $155,750 $200,250 TOTAL COST ALLOCATED $335,750 $239,250 S1 Cost Allocation Cost allocated to P1 = (Total S1 cost) x (P1 Consumption/P1 Consumption+P2 Consumption+S2consumption) = $255,000 X (6,000/6,000 + 1,300 +1,200)) = $180,000 Cost allocated to P2 = (Total S1 cost) x (P2 Consumption/P1 Consumption+P2 Consumption+S2consumption) = $255,000 X (6,000/6,000 + 1,300 +1,200)) = $39,000 Cost allocated to S2 = (Total S1 cost) x (S2 Consumption/P1 Consumption+P2 Consumption+S2consumption) = $255,000 X (1,200/6,000 + 1,300 +1,200)) = $36,000 S2 Cost Allocation Cost allocated to P1 = (Total S2 cost) x (P1 Consumption/P1 Consumption+P2 Consumption) = $356,000 x (7,000/(7,000 + 9,000)) = $155,750 Cost allocated to P2 = (Total S2 cost) x (P2 Consumption/P1 Consumption+P2 Consumption) = $356,000 x (9,000/(7,000+ 9,000)) = $200,250