Question

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 Maintenance Cafeteria Machining Assembly Department Machining Assembly Maintenance Cafeteria Direct Costs $110,000 72,000 51,000 41,000 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.) From: Service department costs Maintenance Maintenance 51,000 Cost Allocation To: Cafeteria Machining 41.000 Assembly Cafeteria $ 51.000 $ 41,000 $

Answer 1

	Cost allocation to:
From:	Maintenance	Cafeteria	Machining	Assembly
Servicing department costs	51,000	41,000	110,000	720,000
Maintenance	-85,909	17,182	42,955	25,773
Cafeteria	34,909	-58,182	11,636	11,636
Total	0	0	164,591	757,409

Calculations:

Assume S1 = Maintenance department and S2 = Cafeteria

S1 = 51,000 + (0.6) x S2

S2 = 41,000 + (0.2) X S1

S1= 51,000 + 0.6 [41,000+(0.2) S1]

S1=51,000 + 24,600 + 0.12 S1

0.88 S1 = 75,600

S1 = 85,909

S2 = 41,000 + 0.2 (85,909)

S2 = 41,000+17,182

S2 = 58,182

Allocation:

		Maintenance	Cafeteria	Machining	Assembly
85,909	0.2	-17,182	17,182
	0.5	-42,955		42,955
	0.3	-25,773			25,773
58,182	0.6	34,909	-34,909
	0.2		-11,636	11,636
	0.2		-11,636		11,636