Howard Company has two support departments (S1 and S2) and two producing departments (P1 and P2). Department S1 costs are allocated on the basis of number of employees, and Department S2 costs are allocated on the basis of space occupied expressed in square feet.



Data on direct department costs, number of employees, and space occupied are as follows:

S1

S2

P1

P2

Direct dept. costs

$7,500

$11,000

$27,500

$30,000

Number of employees

10

5

20

25

Space occupied (sq. ft.)

1,000

500

1,500

2,500



If Howard used the reciprocal method, the algebraic equation expressing the total costs allocated from S1 is

Select one:

a. S1 = $7,500 + 0.10S2.

b. S1 = $7,500 + 0.20S2.

c. S1 = $10,000 + 0.20S2.

d. S1 = $10,000 + 0.10S2.

Answer: S1 = $ 7500 + 0.20 S2

Explanation:

From the question, Howard Company has two support departments which are (S1 and S2) and two producing departments which are (P1 and P2). The department S1 costs are allocated on the basis of number of employees, and the department S2 costs are allocated on basis of space occupied expressed in square feet.

The algebraic equation expressing the total costs allocated from S1 is calculated as follow:

S1 Direct Cost = $ 7500

The cost of S2 will be allocated to S1 based on the space occupied and the total space that is occupied is:

= 1000 + 1500 + 2500

= 5000 sq ft

Space occupied by S1 = 1000

S2's cost allocated to S1 will be:

= (1000 / 5000) of S2 cost

= 0.20 S2

Therefore the correct option is:

S1 = $ 7500 + 0.20 S2