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:

Gross Profit

The difference between sales revenue and the cost of goods sold, before deducting operating expenses, interest, and taxes.

Fiscal Year

A 12-month period used for accounting purposes and planning by organizations, which may not align with the calendar year.

Ledger

A comprehensive collection of a company's financial transactions, divided into individual accounts, and recorded in a way that balances are always maintained across assets, liabilities, and equity.

Physical Inventory

The manual count of all merchandise or stock in a store or warehouse at a particular time.