Tucson Manufacturing Company has five operating departments, two of which are producing departments (P1 and P2) and three of which are service departments (S1, S2, and S3). All costs of the service departments are allocated to the producing departments. The following table shows the distribution of services from the service departments.

Services Provided From	S1	S2	S3	P1	P2
S1	--	5%	25%	50%	20%
S2	10%	--	5	45	40
S3	15	5	--	20	60

The direct operating costs of the service departments are as follows:

S1 -- $49,000

S2 -- $93,500

S3 -- $18,000

Using the direct method, prepare a schedule allocating the service department costs to the producing departments.

Do not round while completing your calculations.

Could you please explain how to get the correct answers for this problem? Thanks!The method used for preparing the schedule is direct method .Under this method overheads of service departments are directly apportioned to production departments totally ignoring the services rendered by one service department to another service department.

As per the question direct operating cost of service department S1 which is $49,000 allocated to production department P1 and P2 by 50% and 20% respectively. That is by the amount of $24,500 and $9,800.

Similarly direct operating cost of service department S2 which $93,500 is allocated to production department P1 and P2 by 45% and 40% respectively. That is by amount of $42,075 and $37400 .

Also, direct operating cost of service department S3 which is $18,000 allocated to production department P1 and P2 by 20% and 60% that is by the amount of $3,600 and $10,800 respectively.

 

Working note:

Direct operating cost S1 =$49,000

  Percentage of allocation to P1=50%

Percentage of allocation to P2=20%

Therefore, Amount of allocation to P1= 50% × $49,000 =$24,500

Amount of allocation to P2= 20% × $49,000 =$9,800

Direct operating cost S2 =$93,500

  Percentage of allocation to P1=45%

Percentage of allocation to P2=40%

Therefore, Amount of allocation to P1= 45% × $93,500 =$42,075

Amount of allocation to P2 = 40% × $93,500 =$37,400

Operating cost S3 =$18,000

Percentage of allocation to P1=20%

Percentage of allocation to P2=60%

Therefore, Amount of allocation to P1= 20% × $18,000 =$3,600

Amount of allocation to P2= 60% × $18,000 =$10,800

 

Thus, allocation of direct operating costs of service departments S1,S2 and S3to producation department P1 totals $70,175 while allocation to the production department P2 totals $58,000.It means allocation to production department P1 is more than that of P2.