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

Exercise 15

How does your answer to 7-11 change if the cost in P1 is changed from $100,000 to $120,000? Brief Exercises 7-15 and 7-16 require the following information:

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

		Percentage Service Provided to:
Department	Cost	S1	S2	P1	P2
Service 1	$112,000	0%	40%	40%	20%
Service 2	44,000	20%	0%	40%	40%
Production 1	345,000
Production 2	216,000
	$717,000

Step 1 of 3

Departmental Cost Allocation:

Departmental cost allocation refers to the allocation of overhead expenses in the department. This approach recognizes that manufacturing operation is divided into production department and support department.

Hence, cost allocation is used to allocate indirect expense between production department and support department.