CMA Intermediate · Cost Accounting · Overheads
After primary distribution, service department S1 has ₹60,000 and S2 has ₹40,000. S1's service is used 20% by S2, 40% by P1 and 40% by P2. S2's service is used 60% by P1 and 40% by P2 (it gives no service to S1). Using the step method, starting with S1, what is the total service cost charged to production department P1?
Under the step method S1's ₹60,000 is spread first, giving P1 ₹24,000 and S2 ₹12,000. S2 then carries ₹52,000 and passes 60% (₹31,200) to P1. P1's total is ₹55,200.
- A₹55,200Correct
- B₹54,000
- C₹48,000
- D₹61,200
Explanation
S1 distributes: S2 gets 12,000, P1 24,000, P2 24,000. S2 then holds 40,000 + 12,000 = 52,000, of which P1 gets 60% = 31,200. P1 total = 24,000 + 31,200 = ₹55,200. The direct method would ignore S1's service to S2 and give ₹54,000.
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