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Required: 1. Determine the total estimated overhead cost for each of the producing departments after allocating the cost of the service department: a. Using employee headcount as the allocation base. b. Using occupied space as the allocation base c. Using productive capacity as the allocation base. d. Using the 3-year average use as the allocation base.

Required: 1. Determine the total estimated overhead cost for each of the producing departments after allocating the cost of the service department: a. Using employee headcount as the allocation base. b. Using occupied space as the allocation base c. Using productive capacity as the allocation base. d. Using the 3-year average use as the allocation base.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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## Cost Allocation for Producing Departments at Great Ape Glassworks Great Ape Glassworks manufactures glass used for smartphone screens. It has two producing departments, P1 and P2, and one service department, S1. The company can track overhead costs to various departments and aims to allocate service department costs to the producing departments. The allocation bases being considered are: ### Data Available - **Overhead Costs:** - Department P1: $159,000 - Department P2: $263,000 - Department S1: $80,000 - **Potential Allocation Bases:** - **Employee Headcount:** P1 (66), P2 (28) - **Space Used (in square feet):** P1 (4,960), P2 (9,160) - **Productive Capacity (in units):** P1 (58,950), P2 (72,450) - **3-year Average Percentage of S1 Output Used:** P1 (60%), P2 (40%) ### Requirements 1. Determine the total estimated overhead cost for P1 and P2 after reallocating S1's cost using: - a. Employee headcount - b. Occupied space - c. Productive capacity - d. 3-year average usage ### Results - **Using Employee Headcount as the Allocation Base:** - P1: $212,250 - P2: $212,250 - **Total:** $212,250 - **Using Occupied Space as the Allocation Base:** - P1: $157,200 - P2: $311,700 - **Total:** $468,900 The calculations suggest different allocations based on the chosen method, impacting how costs are distributed between the two departments. Note that further options for productive capacity and 3-year average usage need computations for completion.
Transcribed Image Text:## Cost Allocation for Producing Departments at Great Ape Glassworks Great Ape Glassworks manufactures glass used for smartphone screens. It has two producing departments, P1 and P2, and one service department, S1. The company can track overhead costs to various departments and aims to allocate service department costs to the producing departments. The allocation bases being considered are: ### Data Available - **Overhead Costs:** - Department P1: $159,000 - Department P2: $263,000 - Department S1: $80,000 - **Potential Allocation Bases:** - **Employee Headcount:** P1 (66), P2 (28) - **Space Used (in square feet):** P1 (4,960), P2 (9,160) - **Productive Capacity (in units):** P1 (58,950), P2 (72,450) - **3-year Average Percentage of S1 Output Used:** P1 (60%), P2 (40%) ### Requirements 1. Determine the total estimated overhead cost for P1 and P2 after reallocating S1's cost using: - a. Employee headcount - b. Occupied space - c. Productive capacity - d. 3-year average usage ### Results - **Using Employee Headcount as the Allocation Base:** - P1: $212,250 - P2: $212,250 - **Total:** $212,250 - **Using Occupied Space as the Allocation Base:** - P1: $157,200 - P2: $311,700 - **Total:** $468,900 The calculations suggest different allocations based on the chosen method, impacting how costs are distributed between the two departments. Note that further options for productive capacity and 3-year average usage need computations for completion.
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