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:

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:

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