Frank’s Foods has a warehouse that supplies products to its store locations. The warehouse has two...
Frank’s Foods has a warehouse that supplies products to its
store locations. The warehouse has two service departments,
Information Services (S1) and Operation Support (S2), and two
operating departments, Order Processing (P1) and Delivery (P2). As
an internal auditor, you are checking the company’s procedures for
cost allocation. You find the following cost allocation results for
September.
| Costs allocated to P1 | $ | 48,000 | from S1 |
| ? | from S2 | ||
| Costs allocated to P2 | ? | from S1 | |
| $ | 27,000 | from S2 | |
Total costs for the two service departments are
$120,000.
Operation Support's services are provided as follows:
- 50 percent to Order Processing.
- 30 percent to Delivery.
The direct method of allocating costs is used.
Required:
a. What are the total service department costs (S1 + S2) allocated to P2?
b. Complete the table under Tab B.
c. What proportion of S1's costs were allocated to P1 and P2?
Homework Answers
Answer:
| a | What are the total service department cost (S1+S2) allocated to P2 | ||
| It is given that 30% of the S2 cost is allocated to P2, | |||
| the cost allocated to P2 is $27,000, thus the total cost of S2 | |||
| is as follow: | |||
| Total cost = Cost allocated to P2 x (0.3+0.5)/0.3 | |||
| Total cost = $27000 x 0.8/0.3 = $72000 | |||
| Total cost for two service departments | 1,20,000 | ||
| Less: Cost of S2 | 72,000 | ||
| Cost of S1 | 48,000 | ||
| Now, it is given cost allocated to P1 from S1 is $48000, | |||
| which is S1 total cost, thus the cost allocated to P2 is $0 ($48,000-$48,000) | |||
| Total service department cost allocated to P2 | |||
| S1 | $0 | ||
| S2 | $27000 | ||
| Total service department cost allocated to P2 | $27000 | ||
| b | Complete the following | ||
| To | |||
| From | Order Processing | Delivery | |
| Information service | $48,000 | $0 | |
| Operation Support(72000-27000) | $45,000 | $27000 | |
| c | What proportion of S1's cost is allocated to P1 and P2 | ||
| 100% to P1 (total S1 cost os allocated to P1) | $48,000 | ||
| 0% to P2 | $0 | ||
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