ABC Company has two service departments (A & b) and two production departments (

Question

ABC Company has two service departments (A & b) and two production departments (X & Y). The number of employees in each department follows. A - 30   B-70 X-400 Y-500

a. If ABC uses uses the direct method of cost allocation and allocates cost on the basis of employees. If B cost amounts to $1,980,000, how much of the department's cost would be allocated to Y?

b. If ABC uses the direct method of cost allocation and allocates cost on the basis of employees. If B cost amounts to $1,980,000, how much of the department's cost would be allocated to X?   

Explanation / Answer

Hi,

Please find the detailed answer as follows:

Part A:

Department Cost Allocated to Y = Total Costs of B*Number of Employees in Department Y/(Total Number of Employees in Department X and Y) = 1980000*500/(400+500) = 1100000

Part B:

Department Cost Allocated to X = Total Costs of B*Number of Employees in Department X/(Total Number of Employees in Department X and Y) = 1980000*400/(400+500) = 880000

Thanks.

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