Cost allocation using step method, help!! MVS Inc. has three service departments

Question

Cost allocation using step method, help!!

MVS Inc. has three service departments, S1, s2 and S3, and two production The following data relate to Dolphin Company's allocation of service departme departments, P1 and P2. P2 S1 S2 S3 P1 Cost 600,000 Requisitions Employees Square Feet 46,00015,500 500,000 1,400 12 100 100 1,300 200 800 1,500 2,500 500 1,000 mber of requisitions. S2 allocates its costs on the basis of employees. nd then S3 S1 allocates its costs on the basis of nu S3 allocates its costs on the basis of square feet. The order of allocation for MVS, Inc. is S1, $2 a MVS Inc. uses the step method to allocate its service department costs

Explanation / Answer

Solution:

Determining the Service Department Costs by using the Step Method:

Service Departments Production Departments Total S1 S2 S3 P1 P2 Costs 60,000 46,000 15,500 500,000 600,000 1,206,000 Allocations: S1 (60,000) 60,000*200/3,000 = 4,000 60,000*100/3,000 = 2,000 60,000*1,400/3,000 = 28,000 60,000*1,300/3,000 = 26,000 0 Total 0 50,000 17,500 528,000 626,000 1,206,000 S2 (50,000) 50,000 * 1/20 = 2,500 50,000 * 12/20 = 30,000 50,000 * 7/20 = 17,500 0 Total 0 0 20,000 558,000 643,500 1,206,000 S3 (20,000) 20,000*1,500/4,000 = 7,500 20,000*2,500/4,000 = 12,500 0 Total 0 0 0 565,500 656,000 1,206,000

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