Ovation Corporation Has Two Service Departments (S1 and S2)and Two

question 50

Essay

Ovation Corporation has two service departments (S1 and S2)and two production departments (P1 and P2).S1 and S2 both use the number of employees as an allocation base.The following data are available:
A.1.800 (300 + 500)
2.$93,750 [$250,000 * (300/800)]
3.None,because production department costs are not allocated to service departments.
A.Assuming use of the direct method:
1.Over how many employees would S1's budgeted cost be allocated?
2.How much of S2's cost would be allocated to P1?
3.How much of P1's cost would be allocated to S1?
B.1.S1's costs are allocated over 860 employees (60 + 300 + 500).Thus,$12,000 will be allocated to S2 [$172,000 * (60/860)].
2.S2's costs total $262,000 ($250,000 + $12,000),resulting in $163,750 being allocated to P2 [$262,000 * (500/800).
3.None,because S1's costs are allocated prior to those of S2.Once a department is closed,no costs are allocated back to it.
B.Assuming use of the step-down method:
1.How much of S1's cost would be allocated to S2? Ovation allocates S1's costs prior to allocating those of S2.
2.How much of S2's total cost would be allocated to P2?
3.How much of S2's total cost would be allocated to S1?

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Definitions:

Omni-Channel Retail

A multi-channel approach to sales that seeks to provide customers with a seamless shopping experience, whether they are shopping online from a mobile device, a laptop, or in a brick-and-mortar store.

Channel Conflicts

Disagreements or disputes among marketing channel members about the distribution of profits or the roles and responsibilities of each member.

Electronic Data Interchanges

The computer-to-computer exchange of business documents in a standard electronic format between business partners.

Mobile Payment Service

A technology that allows consumers to make payments using their mobile devices instead of traditional methods like cash or credit cards.