Corporation allocates support department overhead costs to production departments X and Y by means of the...
Corporation allocates support department overhead costs to production departments X and Y by means of the reciprocal allocation method. For the month of June 2017, the following information is available: overhead costs for support department A, $20,000; overhead costs for support department B, $10,000. Also, percentages of services provided to departments are shown in the table below. The simultaneous equation to be used in the allocation of support department A's costs is:
Services Supplied To A To B To X To Y
From A ― 20% 40% 40%
From B 10% ― 30% 60%
a. A = $20,000 + 0.10·B
b. A = $10,000 + 0.20·B
c. A = $10,000 + 0.10·B
d. A = $20,000 + 0.20·B
Homework Answers
Solution: Option : a. A = $20,000 + 0.10 B.
The simultaneous equation to be used in the allocation of support department A's costs = total overheads of department A + 0.10 of department B overhead after reallocation.
i.e A = $20,000 + 0.10 B
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