Question: Waterfront Corporation Has Two Producing Department And Two Service Departments Labelled P1, P2, S1, S2 Respectively. Direct Costs For Each Department And The Proportion Of Service Costs Used By Various Departments Are As Follows:Cost CenterDirect CostsProportion Of Services Used By:S1S2P1P2P1$100,000P2$50,000S1$15,000-60%30%10%S2$25,00010%-50%40% In …

Waterfront Corporation has two producing department and two
service departments labelled 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

$100,000

P2

$50,000

S1

$15,000

–

60%

30%

10%

S2

$25,000

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

Question/s:
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