Question

Carolina Stoneware Company manufactures pottery in two production departments, P1 and P2. The production departments receive services from four support departments, S1, S2, S3 and S4, which also provide some services to each other. The costs of operating the support departments for last year are as follows: Dept. S1 Dept. S2 Dept. S3 Dept. S4 Dept. Costs $12,000 15,000 10,000 25,000 The percentages of service provided by the support departments to other departments are: SA p1 From S1 10% S3 10% 30% 5% 10% 20% 10% 10% P2 45% 15% 20% 40% 30% 35% 30% 20% 20% 10% 15% 15% REQUIREMENTS: a. Develop the equations needed to allocate support department costs to other departments using the reciprocal method. b. Using excel, calculate the allocation of the support department costs to other departments and the total amount allocated to each production department. Since you are not given the direct overhead in the production departments, you are not able to calculate the total overhead for each department

Answer 1

Correct Answer:

Requirement A:

The amount will be allocated by computing the respective percentage of total amount and then allocating it to the concerned department.

For example, the amount allocated of Department s1 will be computed by:

Amount to be allocated of department S1 = 12000

Amount allocated to Department S2 = 12000*10%

Amount allocated to Department S3 = 12000 *10%

Amount allocated to Department S4 12000 * 5%

Amount allocated to Department P1 = 12000 * 30%

Amount allocated to Department P2= 12000 * 45%

Requirement 2:

Total amount allocates to production Department 1: $ 29,849.41

Total amount allocated to production department 2: $ 32,203.82

Requirement A: Departmental cost	Amount	S1	S2	S3	S4	P1	P2
Department S1	$ 12,000.00		$   1,200.00	$           1,200.00	$               600.00	$    3,600.00	$    5,400.00
Department S2	$ 15,000.00	$   1,500.00		$           4,500.00	$           1,500.00	$    5,250.00	$    2,250.00
Department S3	$ 10,000.00	$   2,000.00	$   2,000.00		$           1,000.00	$    3,000.00	$    2,000.00
Department S4	$ 25,000.00	$   3,750.00	$   2,500.00	$           3,750.00		$    5,000.00	$ 10,000.00
Total		$   7,250.00	$   5,700.00	$           9,450.00	$           3,100.00	$ 16,850.00	$ 19,650.00
Requirement B Reciprocal method
Department S1		$ (7,250.00)	$       725.00	$               725.00	$               362.50	$    2,175.00	$    3,262.50
Subtotal		$                -	$   6,425.00	$         10,175.00	$           3,462.50	$ 19,025.00	$ 22,912.50
Department S2		$       642.50	$ (6,425.00)	$           1,927.50	$               642.50	$    2,248.75	$        963.75
Subtotal		$       642.50	$                -	$         12,102.50	$           4,105.00	$ 21,273.75	$ 23,876.25
Department S3		$   2,420.50	$   2,420.50	$      (12,102.50)	$           1,210.25	$    3,630.75	$    2,420.50
Subtotal		$   3,063.00	$   2,420.50	$                        -	$           5,315.25	$ 24,904.50	$ 26,296.75
Department S4		$       797.29	$       531.53	$               797.29	$         (5,315.25)	$    1,063.05	$    2,126.10
Subtotal		$   3,860.29	$   2,952.03	$               797.29	$                        -	$ 25,967.55	$ 28,422.85
Department S1		$ (3,860.29)	$       386.03	$               386.03	$               193.01	$    1,158.09	$    1,737.13
Subtotal		$                -	$   3,338.05	$           1,183.32	$               193.01	$ 27,125.64	$ 30,159.98
Department S2		$       333.81	$ (3,338.05)	$           1,001.42	$               333.81	$    1,168.32	$        500.71
Subtotal		$       333.81	$                -	$           2,184.73	$               526.82	$ 28,293.96	$ 30,660.69
Department S3		$       436.95	$       436.95	$         (2,184.73)	$               218.47	$        655.42	$        436.95
Subtotal		$       770.75	$       436.95	$                        -	$               745.29	$ 28,949.37	$ 31,097.63
Department S4		$       111.79	$         74.53	$               111.79	$            (745.29)	$        149.06	$        298.12
Subtotal		$       882.55	$       511.48	$               111.79	$                        -	$ 29,098.43	$ 31,395.75
Department S1		$     (882.55)	$         88.25	$                 88.25	$                 44.13	$        264.76	$        397.15
Subtotal		$                -	$       599.73	$               200.05	$                 44.13	$ 29,363.20	$ 31,792.90
Department S2		$         59.97	$     (599.73)	$               179.92	$                 59.97	$        209.91	$          89.96
Subtotal		$         59.97	$                -	$               379.97	$               104.10	$ 29,573.10	$ 31,882.86
Department S3		$         75.99	$         75.99	$            (379.97)	$                 38.00	$        113.99	$          75.99
Subtotal		$       135.97	$         75.99	$                        -	$               142.10	$ 29,687.09	$ 31,958.85
Department S4		$         21.31	$         14.21	$                 21.31	$            (142.10)	$          28.42	$          56.84
Subtotal		$       157.28	$         90.20	$                 21.31	$                        -	$ 29,715.51	$ 32,015.69
Department S1		$     (157.28)	$         15.73	$                 15.73	$                   7.86	$          47.18	$          70.78
Subtotal		$                -	$       105.93	$                 37.04	$                   7.86	$ 29,762.70	$ 32,086.47
Department S2		$         10.59	$     (105.93)	$                 31.78	$                 10.59	$          37.08	$          15.89
Subtotal		$         10.59	$                -	$                 68.82	$                 18.46	$ 29,799.77	$ 32,102.35
Department S3		$         13.76	$         13.76	$              (68.82)	$                   6.88	$          20.65	$          13.76
Subtotal		$         24.36	$         13.76	$                        -	$                 25.34	$ 29,820.42	$ 32,116.12
Department S4		$            3.80	$            2.53	$                   3.80	$               (25.34)	$             5.07	$          10.14
Subtotal		$         28.16	$         16.30	$                   3.80	$                        -	$ 29,825.49	$ 32,126.26
Department S1		$       (28.16)	$            2.82	$                   2.82	$                   1.41	$             8.45	$          12.67
Subtotal		$                -	$         19.11	$                   6.62	$                   1.41	$ 29,833.93	$ 32,138.93
Department S2		$            1.91	$       (19.11)	$                   5.73	$                   1.91	$             6.69	$             6.69
Subtotal		$            1.91	$                -	$                 12.35	$                   3.32	$ 29,840.62	$ 32,145.62
Department S3		$            2.47	$            2.47	$               (12.35)	$                   1.24	$             4.32	$             1.85
Subtotal		$            4.38	$            2.47	$                        -	$                   4.55	$ 29,844.95	$ 32,147.47
Department S4		$            0.68	$            0.46	$                   0.68	$                 (4.55)	$             0.91	$             1.82
Subtotal		$            5.06	$            2.93	$                   0.68	$                        -	$ 29,845.86	$ 32,149.29
Department S1		$         (5.06)	$            0.51	$                   0.51	$                   0.25	$             1.52	$             2.28
Subtotal		$                -	$            3.43	$                   1.19	$                   0.25	$ 29,847.38	$ 32,151.57
Department S2		$            0.34	$         (3.43)	$                   1.03	$                   0.34	$             1.20	$          51.48
Subtotal		$            0.34	$                -	$                   2.22	$                   0.60	$ 29,848.58	$ 32,203.05
Department S3		$            0.44	$            0.44	$                 (2.22)	$                   0.22	$             0.67	$             0.44
Subtotal		$            0.79	$            0.44	$                        -	$                   0.82	$ 29,849.24	$ 32,203.50
Department S4		$            0.12	$            0.08	$                   0.12	$                 (0.82)	$             0.16	$             0.33
Total		$            0.91	$            0.53	$                   0.12	$                        -	$ 29,849.41	$ 32,203.82