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Alpha Corp S1 Department's Costs Are Allocated Based on Square Feet, and Percent

question 58

Multiple Choice

Alpha Corp. prices its products at full cost plus 25 percent. The company has two support departments and two producing departments. Budgeted costs and normal activity levels are as follows: $\begin{array} { | l | c | c | r | r | } \hline &{ \text { Support Departments } } & & { \text { Producing Departments } } \\\hline & \text { S1 } & \text { S2 } & \text { P1 } & \text { P2 } \\\hline \text { Overhead costs } & \$ 15,000 & \$ 27,000 & \$ 250,000 & \$ 200,000 \\\hline \text { Square feet } & 900 & 1,100 & 4,000 & 8,000 \\\hline \text { Number of employees } & 12 & 28 & 100 & 80 \\\hline \text { Direct labor hours } & - & - & 9,000 & 10,000 \\\hline \text { Machine hours } & - & - & 12,000 & 8,000 \\\hline\end{array}$ S1 Department's costs are allocated based on square feet, and S2 Department's costs are allocated based on number of employees.
P1 Department uses direct labor hours to assign overhead costs to products and P2 Department uses machine hours.
Alpha manufactures Product X, each unit of which requires 5 direct labor hours in P1 Department and no time in P2 Department. Direct materials per unit of Product X cost $200, and direct labor is $110 per unit.
Determine the selling price of Product X, if the direct method of allocation is used and the company follows its usual pricing policy.

Definitions:

Financial Lease

A financial lease is a lease agreement where the lessee assumes both the ownership risks and rewards of the leased asset, typically for its useful life.

Operating Lease

A lease agreement allowing the use of an asset without ownership, typically with lower monthly payments and shorter terms than a capital lease.

Off-Balance Sheet Financing

Financial obligations not recorded on the balance sheet of a company, used to keep debt levels low from a reporting perspective.

Financial Leverage

The use of borrowed funds in order to amplify returns from an investment.