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Balistic Company uses two producing departments (A and B) and two service departments (S1 and S2). The costs incurred in S1 and S2 are allocated to Departments A and B and included in their factory overhead rates for costing products. S1 costs are allocated based on the number of employees, S2 costs are allocated based on direct labor hours, and the production departmental overhead rates are also based on direct labor hours. The following data are available for a recent period: S1 S2 Direct department costs Number of employees Direct labor hours $24,000 $36,000 $70,000 $117,500 225 150 1,125 900 Assuming S2 Service Department is allocated first, what is the cost allocated to S1 Service Department, Department A, and Department B? Select one: O A. Service department S1-$3,600 Department A $18,000 Department B $14,400 0 B. Service department SI-$7,200 Department A $36,000 Department B $28,800 O C. Service department $1-$1,800 Department A $9,000 Department B $ 7,200 O D. Service department S1 $3,800 Department A $16,000 Department B $13,600Please show work

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Answer #1

Answer

  • S2’s cost is to be allocated based on direct labor hours
  • % Ratio calculation for allocation

Total Direct Labor hours

% of total

Working

S1

                           225

10%

[225/2250]

A

                        1,125

50%

[1125/2250]

B

                           900

40%

[900/2250]

TOTAL

                        2,250

100%

  • Allocation, based on above

S2's Cost to be allocated

$            36,000.00

Cost Allocated to:

   S1 (10%)

$              3,600.00

   A (50%)

$            18,000.00

   B (40%)

$            14,400.00

  • Correct Answer = Option #1
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