Stormy Corporation has two service departments (S1 and S2) and two production departments (P1 and P2), and uses the step-down method of cost allocation. Management has determined that S1 provides more service to the firm than S2, and has decided that the number of employees is the best allocation base to use for S1. The following data are available:DepartmentNumber of EmployeesS110S220P150P270Which of the following statements is (are) true if S1 and S2 have respective operating costs of $280,000 and $350,000?
A. S1's cost should be allocated (i.e., spread) over 150 employees.
B. S1's cost should be allocated (i.e., spread) over 140 employees.
C. Both S1's cost should be allocated (i.e., spread) over 140 employees and S2 should allocate a total of $390,000 to P1 and P2.
D. S2 should allocate a portion of its $350,000 cost to S1.
E. S2 should allocate a total of $390,000 to P1 and P2.
Answer: C
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