Tarheels Company has two operating departments: P1 and P2. It has two service departments: S1 and S2.
Each department’s direct costs are as follows:
P1..................................................................... $180,000
P2..................................................................... 120,000
S1..................................................................... 60,000
S2..................................................................... 80,000
P1, P2, and S2 use S1’s services as follows:
P1..................................................................... 20 Percent
P2..................................................................... 20 Percent
S2..................................................................... 60 Percent
P1 and P2 use S2’s services as follows:
P1..................................................................... 40 Percent
P2..................................................................... 60 Percent
Allocate service department costs using the step method. Start by allocating S1 to S2, P1, and P2.