Cost Management: A Strategic Emphasis 5th Edition by David Stout, Edward Blocher, Gary Cokins

Exercise 13

Involve departmental cost allocation with two service departments and two production departments. Use the following information for these four exercises:

		Percentage Service Provided to:
Department	Cost	S1	S2	P1	P2
Service 1 (S1)	$ 30,000	0%	30%	35%	35%
Service 2 (S2)	20,000	20	0	20	60
Production 1 (P1)	100,000
Production 2 (P2)	150,000

What is the total cost in P1 and in P2 after allocation?

Step 1 of 5

Cost Allocation

Cost allocation begins with identification of costs incurred by the company, aggregating it and then assigning them to respective activities of the concern. These activities can be separate departments, products or cost centres of the company.