Cordner Corporation Has Two Production Departments, P1 and P2, and Two

question 107

Multiple Choice

Cordner Corporation has two production departments, P1 and P2, and two service departments, S1 and S2. Direct costs for each department and the proportion of service costs used by the various departments for the month of July are as follows:
$$\begin{array}{r} { \text { Proportion of Services Used by: } } \\ \begin{array} { c l c c c c } \text { Department } & \text { Direct costs } & \text { S1 } & \text { S2 } & \text { P1 } & \text { P2 } \\\text { S1 } & \$ 60,000 & & 0.70 & 0.10 & 0.20 \\\text { S2 } & \$ 100,000 & 0.20 & & 0.30 & 0.50 \\\text { P1 } & \$ 160,000 & & & & \\\text { P2 } & \$ 140,000 & & & &\end{array}\end{array}$$
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Under the direct method of cost allocation, the amount of S1 costs allocated to S2 would be:

• A) $42,000.
• B) $20,000.
• C) $0.
• D) $6,000.

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Definitions:

Self-interest

The pursuit of personal advantage and well-being, often driving economic decisions.

Neoclassical Models

Economic theories and models that focus on the determination of prices, outputs, and income distributions in markets through supply and demand, often under the assumption of rational behavior and efficient markets.

Economic Outcomes

The results or consequences of economic activities, including growth, employment levels, and wealth distribution.

Context Affects

The influence of situational and environmental factors on perceptions, decisions, and behaviors.