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| You Ought to Get This Company | Support Department | ||||
| Direct Method | Janitorial | Maintenance | Accounting | R&D | Total |
| Hours of maintenance | 5.00 | - | 20.00 | 15.00 | 40.00 |
| Square feet | 20.00 | 30.00 | 100.00 | 300.00 | 450.00 |
| Costs before allocation | 60,172.00 | 71,612.00 | 82,500.00 | 61,372.00 | 275,656.00 |
| Allocation of Maintenance costs (20:15) | (71,612.00) | 40,921.14 | 30,690.86 | - | |
| Allocation of Janitorial costs (100:300) | (60,172.00) | 15,043.00 | 45,129.00 | - | |
| Total allocated | 55,964.14 | 75,819.86 | |||
| Costs after allocation | - | - | 138,464.14 | 137,191.86 | 275,656.00 |
| Answer 1 $ 55,964.14 allocated to Accounting Department using Direct Method. |
| Answer 2 $ 75,819.86 allocated to R&D Department using Direct Method. |
| Support Department | |||||
| Step Down Method | Janitorial | Maintenance | Accounting | R&D | Total |
| Hours of maintenance | 5.00 | - | 20.00 | 15.00 | 40.00 |
| Square feet | 20.00 | 30.00 | 100.00 | 300.00 | 450.00 |
| Costs before allocation | 60,172.00 | 71,612.00 | 82,500.00 | 61,372.00 | 275,656.00 |
| Rank | Rank 2 | Rank 1 | |||
| Maintenance cost will be allocated first it is higher than Janitorial cost. | |||||
| Allocation of Maintenance costs (5:20:15) | 8,951.50 | (71,612.00) | 35,806.00 | 26,854.50 | - |
| Total costs | 69,123.50 | - | 118,306.00 | 88,226.50 | 275,656.00 |
| Allocation of Janitorial costs (100:300) | (69,123.50) | - | 17,280.88 | 51,842.63 | - |
| Total allocated | 53,086.88 | 78,697.13 | |||
| Costs after allocation | - | - | 135,586.88 | 140,069.13 | 275,656.00 |
| Answer 3 $ 53,086.88 allocated to Accounting Department using Step Down Method. |
| Answer 4 $ 78,697.13 allocated to R&D Department using Step Down Method. |
| Support Department | |||||
| Reciprocal Method | Janitorial | Maintenance | Accounting | R&D | Total |
| Hours of maintenance | 5.00 | - | 20.00 | 15.00 | 40.00 |
| Square feet | 30.00 | 100.00 | 300.00 | 430.00 | |
| Hours of maintenance % | 12.50% | 50.00% | 37.50% | 100.00% | |
| Square feet % | 6.98% | 23.26% | 69.77% | 100.00% | |
| Costs before allocation | 60,172.00 | 71,612.00 | 82,500.00 | 61,372.00 | 275,656.00 |
| Let Overhead cost of Maintenance department is $ X and Overhead cost of Janitorial department is $ Y |
| So, X= 71612+ 6.98% of Y | Equation 1 |
| Y= 60712+ 12.50% of X | Equation 2 |
| Or, X= 71612+ 0.0698Y | |
| Y= 60712+ 0.125X |
| Substituting the value of X in equation 2: |
| Y = 60712 + 0.125(71,612 + 0.0698Y) |
| Y = 60712 + 8951.50 + 0.0087Y |
| Y – 0.0087Y = 69,123.50 |
| 0.9913Y = 69,123.50 |
| Y = 69,123.50/0.9913 |
| Y = $ 69,731.62 |
| Total Overhead cost of Janitorial department is $ 69,731.62 |
| Substituting the value of Y in equation 1: |
| X= 71612+ 6.98% of Y |
| X= 71612+ 6.98%* 69,731.62 |
| X= 71612+ 4865 |
| X= $ 76,477 |
| Total Overhead cost of maintenance department is $ 76,477. |
| Allocation Summary | Support Department | ||||
| Reciprocal Allocation Method | Janitorial | Maintenance | Accounting | R&D | Total |
| Hours of maintenance % | 12.50% | 50.00% | 37.50% | 100.00% | |
| Square feet % | 6.98% | 23.26% | 69.77% | 100.00% | |
| Costs before allocation | 60,172.00 | 71,612.00 | 82,500.00 | 61,372.00 | 275,656.00 |
| Allocation | |||||
| Allocation of Maintenance costs (20:15) | (69,731.62) | 4,865.00 | 16,216.66 | 48,649.97 | - |
| Allocation of Janitorial costs (100:300) | 9,559.62 | (76,477.00) | 38,238.50 | 28,678.87 | - |
| Total allocated | 54,455.16 | 77,328.84 | |||
| Costs after allocation | - | - | 136,955.16 | 138,700.84 |
| Answer 5 $ 54,455.16 allocated to Accounting Department using Reciprocal Method. |
| Answer 6 $ 77,328.84 allocated to R&D Department using Reciprocal Method. |
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