Question

Answer questions step by step. Also, Add the number on a schedule.

1. Leader Company has two support departments (S1 and S2) and two producing departments (P1 and P2). Estimated direct costs and percentages of services used by these departments are as follows:

Allocation of support departments	S1	S2	P1	P2
S1	-	10%	40%	50%
S2	20%	-	50%	30%
Direct costs	£4,500	£8,000	£10,000	£15,000

        Required:

a.	Prepare a schedule allocating the support department costs to the producing departments using the direct allocation method.
b.	Prepare a schedule allocating the support department costs to the producing departments using the sequential allocation method.

2. Describe the differences between support and producing departments. Give two examples of each.

Answer 1

ANSWER

a)

Direct allocation method :

Support department	S1	S2	P1 (Producing department)	P2 (Producing department)
Direct Costs	4500	8000	10000	15000
S1	(4500)	0	2000(NOTE 1)	2500(NOTE 2)
S2	0	(8000)	5000(NOTE 3)	3000(NOTE 4)

Calculation of Cost of Service Department (S1) allocated to Producing Department (P1):

= 4500 * 0.40 / (0.40 + 0.50)

= 4500 * 0.40 / 0.90

= $ 2000

Calculation of Cost of Service Department (S1) allocated to Producing Department (P2) :

= 4500 * 0.50 / (0.40 + 0.50)

= 4500 * 0.50 / 0.90

= $ 2500

Calculation of Cost of Service Department (S2) allocated to Producing Department (P1) :

= 8000 * 0.50 / (0.50 + 0.30)

= 8000 * 0.50 / 0.80

= $ 5000

Calculation of Cost of Service Department (S2) allocated to Producing Department (P2) :

= 8000 * 0.30 / (0.50 + 0.30)

= 8000 * 0.30 / 0.80

= $ 3000

b).

Sequential allocation method :

Support department	S1	S2	P1 (Producing department)	P2 (Producing department)
Direct Costs	4500	8000	10000	15000
S2	1600 (8000 * 20 %)	(8000)	4000(NOTE 5)	2400(NOTE 6)
S1	(6100)	0	2711(NOTE 7)	3389(NOTE 8)

Calculation of Cost of Service Department (S2) allocated to Producing Department (P1) :

= (8000 - 1600) * 0.50 / (0.50 + 0.30)

= 6400 * 0.50 / 0.80

= $ 4000

Calculation of Cost of Service Department (S2) allocated to Producing Department (P2) :

= (8000 - 1600) * 0.30 / (0.50 + 0.30)

= 6400 * 0.30 / 0.80

= $ 2400

Calculation of Cost of Service Department (S1) allocated to Producing Department (P1) :

= 6100 * 0.40 / (0.40 + 0.50)

= 6100 * 0.40 / 0.90

= $ 2711

Calculation of Cost of Service Department (S1) allocated to Producing Department (P2) :

= 6100 * 0.50 / (0.40 + 0.50)

= 6100 * 0.50 / 0.90

= $ 3389

================

DEAR STUDENT,

IF YOU HAVE ANY QUERY PLEASE ASK ME IN THE COMMENT BOX,I AM HERE TO HELP YOU.PLEASE GIVE ME POSITIVE RATING..

****************THANK YOU****************