Whitney Company Has Two Production Departments (P1 and P2)and Three

question 31

Essay

Whitney Company has two production departments (P1 and P2)and three service departments (S1,S2,and S3).Service department costs are allocated to production departments using the direct method.The $300,000 costs of department S1 are allocated based on the number of employees in each production department.The $400,000 costs of department S2 are allocated based on the square footage of space occupied by each production department.The $225,000 costs of department S3 are allocated based on hours of technology support used by each production department.Information for each production department is as follows:
$\begin{array}{llll}&\text { Number of } & \text { Square Feet } & \text { Technology } \\&\text { Employees } & \text { Occupied } & \text { Support Hours } \\\hline\text { P1 } & 25 & 4,000 & 12,000 \\\text { P2 } & \underline{75} & \underline{6,000} & \underline{28,000} \\\text { Total } & \underline{100} & \underline{10,000} & \underline{40,000}\end{array}$

a. Calculate the service department costs allocated to each production department.

b. In general, do U.S. Generally Accepted Accounting Principles allow for the allocation of service department costs to production departments for the purpose of valuing inventory?

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Definitions:

Life Estate

An ownership interest in which the holder has the right to possess the property until her or his death.

Eminent Domain

The right of a government or its agent to expropriate private property for public use, with payment of compensation.

Trade Secret

Confidential business information that provides a competitive edge and is subject to efforts to maintain its secrecy.

State Official

An individual who holds an office or position of authority in the government of a state.