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CMA Intermediate · Cost Accounting · Overheads

Service departments S1 and S2 have primary costs of Rs 60,000 and Rs 40,000. S1 serves S2 and production departments P1 and P2 in the ratio 20%:40%:40%. Under the step method, S1 is distributed first and S2 next (S2 does not serve S1). Ignoring other items, the amount of S2 to be distributed to production departments is:

The amount of S2 to be distributed is Rs 52,000. Under the step method S1 first passes 20% of its Rs 60,000, that is Rs 12,000, to S2, which is added to S2's own Rs 40,000. S2's total is then shared among production departments.

  1. ARs 40,000
  2. BRs 48,000
  3. CRs 52,000Correct
  4. DRs 60,000

Explanation

S1 gives 20% of Rs 60,000 = Rs 12,000 to S2. S2 total = 40,000 + 12,000 = Rs 52,000. This whole amount is then spread to P1 and P2. Rs 48,000 would wrongly treat the primary cost as including only S2's own cost plus 8,000 and Rs 40,000 ignores the transfer from S1.

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