Question

RT Renovations is organized with two service departments (S1 and S2) and two production departments (P1 and P2). The company uses the step method to allocate service department costs, allocating from S1 to S2, P1, and P2 first. The cost accountant tells you that in November, $110,000 was allocated from S2 to P1 (including any cost allocated from S1 to S2). She also tells you that $30,000 was allocated from S1 to S2 in November.

P1 used 20 percent of S2 services and P2 used 60 percent of S2 services in November. Finally, S2 used 20 percent of S1 services in November.

Required:

a. What are the total costs incurred by S1 in November? (Do not round intermediate calculations.)

b. What are the total costs incurred by S2 (before any allocations) in November? (Do not round intermediate calculations.)

Thanks so much!

Answer 1

ANSWER:

(a)

Total costs incurred by S1 in November = costs allocated by S1 to S2/percentage of S1 services used by S2

= $30000/20%

= $150000

(b)

total costs incurred by S2 (before any allocations) in November = (costs allocated by S2 to P1/percentage of S2 services used by P1) - costs allocated from S1 to S2

= ($110000/20%) - $30000

= $520000