Question

Snowy River Stallion Inc. produces horse and rancher equipment. Costs from Support Department 1 are allocated based on the number of employees. Costs from Support Department 2 are allocated based on asset value. Relevant department information is provided in the following table:

	Support Department 1		Support Department 2		Production Department 1		Production Department 2
Number of employees	9		7		25		18
Asset value	$1,150		$670		$6,230		$5,100
Department cost	$20,000		$15,500		$99,000		$79,000

Using the sequential method of support department cost allocation, determine the total costs from Support Department 1 (assuming they are allocated first) that should be allocated to Support Department 2 and to each of the production departments.

	Support Department 2		Production Department 1		Production Department 2
Support Department 1 cost allocation	$		$		$

Answer 1

Support department 1 cost = $20,000

Number of employees in support department 2 = 7

Number of employees in production department 1 = 25

Number of employees in production department 2 = 18

Total number of employees in support department 2 and production departments = 7 + 25 + 18

= 50

Support department 1 cost to be allocated to support department 2 = Support department 1 cost x Number of employees in support department 2/Total number of employees in support department 2 and production departments

= 20,000 x 7/50

= $2,800

Support department 1 cost to be allocated to production department 1 = Support department 1 cost x Number of employees in production department 1/Total number of employees in support department 2 and production departments

= 20,000 x 25/50

= $10,000

Support department 1 cost to be allocated to production department 1 = Support department 1 cost x Number of employees in production department 2/Total number of employees in support department 2 and production departments

= 20,000 x 18/50

= $7,200

	Support Department 2		Production Department 1		Production Department 2
Support Department 1 cost allocation	$2,800		$10,000		$7,200

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