Question

Please show your work

University Printers has two service departments Maintenance and Personnel) and two operating departments (Printing and Developing). Management has decided to allocate maintenance costs on the basis of machine-hours in each department and personnel costs on the basis of labor-hours worked by the employees in each. The following data appear in the company records for the current period: Machine-hours Labor-hours Department direct costs Maintenance 500 $5,000 Personnel 1,000 $12,000 Printing 1,000 500 $15,000 Developing 3,000 2,000 $10,000 Required: Allocate the service department costs using the reciprocal method. (Matrix algebra is not required because there are only two service departments.) (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations.) Maintenance $ 5.000 Cost Allocation To: Personnel Printing Developing 12.000 os From: Service department costs Maintenance Personnel Total s 5.000 s 12.000 S 0 s

Answer 1

Let X be Costs of Maintenance Dept and Y be Costs of Service dept.

So, by framing the algebraic equation we get,

x = 5000+(500/3000)y ...(1)

y = 12000+(1000/5000)x ...(2)

Substituing eq. 2 in 1, we get x = 5000+(5/3)(12000+(1/5)x)

Solving the above equations we get x=7241 and y=13448.

So,

	Maintenance	Personnel	Printing	developing
Costs before allocation	5000	12000	0	0
Maintenance	-7241	1448	1448	4345
Personnel	2241	-13448	2241	8966
	0	0	3690	13310

Please comment in case of any query regarding the solution.