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  3. thermal corporation has two producing departments

Thermal Corporation has two producing departments and two service departments labeled P1, P2, S1, S2...

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Question

Accounting

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

Cost Center

Direct Costs

Proportion of services used by:

S1

S2

P1

P2

P1

P100, 000

P2

P50, 000

S1

P15, 000

-

60%

30%

10%

S2

P25, 000

10%

-

50%

40%

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:

  1. Direct method
  2. Step method start with S1
  3. Algebraic method

*Reposting this question again, because it has been answered incorrectly many times.

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