Yekka Corporation has two producing department and two service departments labeled P1, P2, S1 and S2, respectively. Direct costs for each department and the proportion of services costs used by various departments are as follows: Cost Center Direct Costs Proportion of services used by: S1 S2 P1 P2 P1 90,000 P2 60,000 S1 20,000 - .80 .1 .1 S2 32,000 .20 - .50 .30 In calculating predetermined overhead rates, machine hours are used as the base in P1 and direct labor hours as the base in P2. P1 P2 Machine hours 50,000 40,000 Direct labor hours 40,000 20,000 Requirements: Allocate the service department costs to operating departments and compute the factory overhead rate for P1 and P2 using the following methods: Direct method Step method – start with S1 Algebraic method

Principles of Cost Accounting

17th Edition

ISBN:9781305087408

Author:Edward J. Vanderbeck, Maria R. Mitchell

Publisher:Edward J. Vanderbeck, Maria R. Mitchell

Chapter4: Accounting For Factory Overhead

Section: Chapter Questions

Problem 8E: A manufacturing company has two service and two production departments. Building Maintenance and...

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Yekka Corporation has two producing department and two service departments labeled P1, P2, S1 and S2, respectively. Direct costs for each department and the proportion of services costs used by various departments are as follows:

Cost Center	Direct Costs	Proportion of services used by:
	S1	S2	P1	P2
P1	90,000
P2	60,000
S1	20,000	-	.80	.1	.1
S2	32,000	.20	-	.50	.30

In calculating predetermined overhead rates, machine hours are used as the base in P1 and direct labor hours as the base in P2.

P1 P2

Machine hours 50,000 40,000

Direct labor hours 40,000 20,000

Requirements:

Allocate the service department costs to operating departments and compute the factory overhead rate for P1 and P2 using the following methods:
- Direct method
- Step method – start with S1
- Algebraic method

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