Question

KAB, Inc. has two service departments (S1 and S2) and two production departments (P1 and P2). Information from the most recent year shows the following for each department:
S1 S2 P1 P2
Direct overhead $30,000 $20,000 $55,000 $45,000
Allocated overhead 5,000 2,500 12,500 10,000
Machine hours 2,00 800
Square feet 3,000 1,000
KAB allocates S1 to the production departments based on square feet and S2 based on machine hours. How much of S1’s overhead is allocated to P2?
a. $7,500
b. $8,750
c. $11,667
d. $28,000

Answer 1

Answer:

b. $8,750

Explanation:

How much of S1’s overhead is allocated to P?

Total Overhead of S1 department = Direct Overhead + Allocated Overhead

Total Overhead of S1 department = $30,000 + $5,000

Total Overhead of S1 department = $35,000

Overhead Cost per Square Feet = Total Overhead Cost/Total Square Feet

Overhead Cost per Square Feet = $35,000 / 4,000

Overhead Cost per Square Feet = $8.75 Per Square Feet

S1's Overhead Allocated to Department P2 = 1,000 square feet * $8.75  

S1's Overhead Allocated to Department P2 = $8,750.