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

question 33

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: $\begin{array}{rcc}&\text { Number of}\\&\underline{\text { Employees}}&\underline{\text { Budgeted Cost }}\\ \text { S1 } & 40 & \$ 172,000 \\\text { S2 } & 60 & 250,000 \\\mathrm{P} 1 & 300 & 660,000 \\\mathrm{P} 2 & 500 & 840,000\end{array}$
Required:
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. 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:

Manufacturing Costs

The expenses involved in the production of goods, including labor, raw materials, and overhead.

Batch-Level Activities

Activities that are performed each time a batch of goods is handled or processed, regardless of how many units are in the batch. The amount of resource consumed depends on the number of batches run rather than on the number of units in the batch.

Unit-Level Activities

Tasks or processes that vary directly with the number of units produced or services provided.

Activity-Based Costing

A costing method that assigns overhead and indirect costs to specific activities based on their use of resources.