River, Inc., has two producing departments. Each producing department is held responsible for a share of the costs of a support department.Actual and budgeted data are as follows: CurrentYearSupport department hours used: Department X10,000 Department Y14,000 Total hours24,000 Support department costs: Actual support department costs$72,000 Budgeted fixed service center costs$30,000 Budgeted variable rate per hour$4.00Normal support department usage is 15,000 hours each for Department X and Department Y.Required:A.Assuming the purpose is product costing, allocate the costs of the support department using the direct method.B.Assuming the purpose is to evaluate performance, allocate the costs of the support department.

Cost allocation gives vital data regarding cost consumption to management, which they may utilise to…

Answered: River, Inc., has two producing…

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter7: Allocating Costs Of Support Departments And Joint Products

Section: Chapter Questions

Problem 28E: Minor Co. has a job order cost system and applies overhead based on departmental rates. Service...

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River, Inc., has two producing departments. Each producing department is held responsible for a share of the costs of a support department.

Actual and budgeted data are as follows:

	Current Year
Support department hours used:
Department X	10,000
Department Y	14,000
Total hours	24,000

Support department costs:
Actual support department costs	$72,000
Budgeted fixed service center costs	$30,000
Budgeted variable rate per hour	$4.00

Normal support department usage is 15,000 hours each for Department X and Department Y.

Required:

A.	Assuming the purpose is product costing, allocate the costs of the support department using the direct method.
B.	Assuming the purpose is to evaluate performance, allocate the costs of the support department.

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