Exercise 11-32 (Static) Cost Allocation: Reciprocal Method (LO 11-4) PDF

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Summary

Learning Objective: 11-
04 Allocate service
department costs using
the reciprocal method....

Description

5.

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

Award:

Caro Manufacturing has two production departments, Machining and Assembly, and two service departments, Maintenance and Cafeteria. Direct costs for each department and the proportion of service costs used by the various departments for the month of August follow: Proportion of Services Used by Department Machining Assembly Maintenance Cafeteria

Direct Costs $99,000 64,400 40,000 32,000

Maintenance

Cafeteria

Machining

Assembly

— 0.8

0.2 —

0.5 0.1

0.3 0.1

Required: Use the reciprocal method to allocate the service costs. (Matrix algebra is not required.) (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Round your final answers to the nearest whole dollar amounts.) Cost Allocation To: From:

Maintenance

Service department costs

$

Maintenance Cafeteria

40,000



$

Machining

32,000



Assembly 



(78,095)



15,619



39,048



23,428



38,095



(47,619)



4,762



4,762



$

Total

Cafeteria

0

$

0

$

43,810

$

28,190

 References Worksheet

Difficulty: 2 Medium

Exercise 11-32 (Static) Cost Allocation: Reciprocal Method (LO 11-4)

Learning Objective: 1104 Allocate service department costs using the reciprocal method.

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Caro Manufacturing has two production departments, Machining and Assembly, and two service departments, Maintenance and Cafeteria. Direct costs for each department and the proportion of service costs used by the various departments for the month of August follow: Department

Direct

Maintenance

Proportion of Services Used by Cafeteria Machining

Assembly

Costs $99,000 64,400 40,000 32,000

Machining Assembly Maintenance Cafeteria

— 0.8

0.2 —

0.5 0.1

0.3 0.1

Required: Use the reciprocal method to allocate the service costs. (Matrix algebra is not required.) (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Round your final answers to the nearest whole dollar amounts.) Cost Allocation To: From:

Maintenance $

Service department costs Maintenance Cafeteria Total

F

$

Cafeteria $

40,000

Machining

Assembly

32,000

(78,095)+/-1

15,619+/-1

39,048+/-1

23,428+/-1

38,095+/-1

(47,619)+/-1

4,762+/-1

4,762+/-1

0+/-2

F

$

0 +/-2

F

$

43,810 +/-2

F

$

 Explanation: Set up the equations: Total service department costs = S1 (Maintenance) = S2 (Cafeteria) =

Direct costs of the service department $ 40,000 32,000

+ + +

Cost allocated to the service department 0.80 S2 0.20 S1

Substituting, the first equation into the second yields, S2 = $32,000 + 0.20 ($40,000 + 0.80 S2) S2 = $32,000 + $8,000 + 0.16 S2 0.84 S2 = $40,000 S2 = $47,619 Substituting the value of S2 back into the first equation gives, S1 = $40,000 + 0.80 ($47,619) S1 = $78,095 Maintenance: $15,619 = 0.2 × $78,095; $39,048 = 0.5 × $78,095; $23,429 = 0.3 × $78,095. Cafeteria: $38,095 = 0.8 × $47,619; $4,762 = 0.1 × $47,619; $4,762 = 0.1 × $47,619. 

28,190+/-2...