Whitney Company Has Two Production Departments (P1 and P2)and Three

Essay

Whitney Company has two production departments (P1 and P2)and three service departments (S1,S2,and S3).Service department costs are allocated to production departments using the direct method.The $300,000 costs of department S1 are allocated based on the number of employees in each production department.The $400,000 costs of department S2 are allocated based on the square footage of space occupied by each production department.The $225,000 costs of department S3 are allocated based on hours of technology support used by each production department.Information for each production department is as follows:
$\begin{array}{llll}&\text { Number of } & \text { Square Feet } & \text { Technology } \\&\text { Employees } & \text { Occupied } & \text { Support Hours } \\\hline\text { P1 } & 25 & 4,000 & 12,000 \\\text { P2 } & \underline{75} & \underline{6,000} & \underline{28,000} \\\text { Total } & \underline{100} & \underline{10,000} & \underline{40,000}\end{array}$

a. Calculate the service department costs allocated to each production department.

b. In general, do U.S. Generally Accepted Accounting Principles allow for the allocation of service department costs to production departments for the purpose of valuing inventory?