Question

Exercises CH 3 Cost Assignment.docx_19405 1.1582564109000 - Word (Unlicensed Product) Review View Help Tell me what you want to do DE ACID AaBbcc Aabbccc AaB AaB 1 Normel 1 No Space Heading 1 Heading 2 The Sun ed. Rearth Exercises 1. Leader Company has two support departments (SI and S2) and two producing departments (Pl and P2). Estimated direct costs and percentages of services used by these deplirtments are as follows: Allocation of support departments S2PLP2 10% 40% 50% 50% 30% Direct costs 4 500 £8 000 £10 000 15000 Required: a. Prepare a schedule allocating the support department costs to the producing departments using the direct allocation method. 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 three examples of each

Answer 1

1.

a.

Direct Allocation Method

	S1	S2	P1	P2	TOTAL
Costs of support department before allocation	4500	8000	-	-	12500
S1 Direct Allocation (40%:50% or 4:5)	-4500		4500*4/9 =2000	4500*5/9=2500
S2 Direct Allocation (50%:30% or 5:3)		-8000	8000*5/8 = 5000	8000*3/8 = 3000

b.

Sequential Method

	S1	S2	P1	P2	TOTAL
Costs of support department before allocation	4500	8000	-	-	12500
S1 Direct Allocation (10%:40%:50% or 1:4:5)	-4500	4500*1/10 =450	4500*4/10 = 1800	4500*5/10=2250
S2 Direct Allocation (50%:30% or 5:3)		-8450	8450*5/8 = 5281	8450*3/8 = 3000

2. Direct Method ignores the services provided by one support department to another, however the sequential method considers this. Direct method doesn't require any information pertaining to service consumption by support or service departments, hence it is easier than sequential method.