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

question 47

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 P1 would be:

• A) $20,000.
• B) $6,000.
• C) $30,000.
• D) $62,500.

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Definitions:

Protectionism

The practice of shielding one or more industries within a country’s economy from foreign competition through the use of tariffs or quotas.

Anticompetitive Export Subsidies

Financial support from a government to domestic businesses that unfairly disadvantages competitors in international markets.

Tariffs

Taxes imposed on imported goods to increase their price and protect domestic industries.

Fair Market Value

The price that a property would sell for on the open market, between a willing buyer and a willing seller, each with reasonable knowledge of the pertinent facts.