Rust Company Has Two Support Departments (S1 and S2) and Two

question 71

Multiple Choice

Rust Company has two support departments (S1 and S2) and two producing departments (X and Y) . Department S1 serves departments S2, X, and Y in the following percentages, respectively: 10%, 35%, 55%. Department S2 serves departments S1, X, and Y in the following percentages, respectively: 6%, 50%, and 44%. Direct department costs for S1, S2, X, and Y are $15,000, $8,000, $105,000, and $97,500, respectively.
-Refer to the figure.What is S2's cost equation?

• A)S2 = $8,000 + 0.06S1
• B)S2 = $8,000 + 0.10S1
• C)S2 = $15,000 + 0.06S1
• D)S2 = $15,000 + 0.10S1

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Definitions:

Direct Materials

Direct materials are raw materials that can be directly attributed to the production of goods or services and are a critical component of manufacturing costs.

Overhead Rate

A measure used to allocate indirect costs to produced goods, calculated by dividing total overheads by an allocation base like labor hours or machine hours.

Direct Labor Cost

The cost of labor directly involved in the production process, excluding indirect expenses like maintenance.

Predetermined Overhead Rate

This rate is used to allocate overhead costs to products or services based on a specific formula, often involving direct labor hours or direct material costs, aiding in the budgeting and costing process.