Homework Answers
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| Marine Company | Support Department | ||||
| Direct Method | Design | Programming | Dept. 1 | Dept. 2 | Total |
| Labor Hours- Design | - | 5,000.00 | 1,000.00 | 9,000.00 | 15,000.00 |
| Labor Hours- Programming | 400.00 | - | 600.00 | 1,000.00 | 2,000.00 |
| Costs before allocation | 157,200.00 | 65,200.00 | 222,400.00 | ||
| Allocation of Design (1000:9000) | (157,200.00) | 15,720.00 | 141,480.00 | - | |
| Allocation of Programming (600:1000) | (65,200.00) | 24,450.00 | 40,750.00 | - | |
| Costs after allocation | - | - | 40,170.00 | 182,230.00 | 222,400.00 |
| Support Department | |||||
| Step Down Method | Design | Programming | Dept. 1 | Dept. 2 | Total |
| Labor Hours- Design | - | 5,000.00 | 1,000.00 | 9,000.00 | 15,000.00 |
| Labor Hours- Programming | 400.00 | - | 600.00 | 1,000.00 | 2,000.00 |
| Costs before allocation | 157,200.00 | 65,200.00 | 222,400.00 | ||
| Rank | Rank 1 | Rank 2 | |||
| Design cost will be allocated first as it is higher than Programming cost. | |||||
| Allocation of Design (500-:1000:9000) | (157,200.00) | 52,400.00 | 10,480.00 | 94,320.00 | - |
| Total costs | - | 117,600.00 | 10,480.00 | 94,320.00 | 222,400.00 |
| Allocation of Programming (600:1000) | - | (117,600.00) | 44,100.00 | 73,500.00 | - |
| Costs after allocation | - | - | 54,580.00 | 167,820.00 | 222,400.00 |
| Support Department | |||||
| Reciprocal Method | Design | Programming | Dept. 1 | Dept. 2 | Total |
| Labor Hours- Design | - | 5,000.00 | 1,000.00 | 9,000.00 | 15,000.00 |
| Labor Hours- Programming | 400.00 | - | 600.00 | 1,000.00 | 2,000.00 |
| Labor Hours- Design % | - | 33.33% | 6.67% | 60.00% | 100.00% |
| Labor Hours- Programming % | 20.00% | - | 30.00% | 50.00% | 100.00% |
| Costs before allocation | 157,200.00 | 65,200.00 | 222,400.00 |
| Let Overhead cost of Design department is $ X and Overhead cost of Programming department is $ Y |
| So, X= 157,200+ 20% of Y | Equation 1 |
| Y= 65200+ 33.33% of X | Equation 2 |
| Or, X= 157,200+ 0.20Y | |
| Y= 65200+ 33.33% of X |
| Substituting the value of X in equation 2: |
| Y = 65200 + 33.33%(157200 + 0.20Y) |
| Y = 65200 + 52400 + 0.066666Y |
| Y – 0.066666Y = 117600 |
| 0.93333Y = 117600 |
| Y = 117600/0.933333 |
| Y = $ 126,000 |
| Total Overhead cost of Programming department is $ 126,000. |
| Substituting the value of Y in equation 1: |
| Or, X= 157,200+ 0.20Y |
| Or, X= 157,200+ 0.20*126000 |
| Or, X= 157,200+ 25,200 |
| X= 182,400 |
| Total Overhead cost of Design department is $ 182,400. |
| Allocation Summary | Support Department | ||||
| Reciprocal Allocation Method | Design | Programming | Dept. 1 | Dept. 2 | Total |
| Labor Hours- Design % | - | 33.33% | 6.67% | 60.00% | 100.00% |
| Labor Hours- Programming % | 20.00% | - | 30.00% | 50.00% | 100.00% |
| Costs before allocation | 157,200.00 | 65,200.00 | 222,400.00 | ||
| Allocation | |||||
| Allocation of Design costs | (182,400.00) | 60,800.00 | 12,160.00 | 109,440.00 | - |
| Allocation of Programming costs | 25,200.00 | (126,000.00) | 37,800.00 | 63,000.00 | - |
| Costs after allocation | - | - | 49,960.00 | 172,440.00 | 222,400.00 |
| Final Answer | Dept. 1 | Dept. 2 | Total |
| Direct Method | 40,170.00 | 182,230.00 | 222,400.00 |
| Step Down Method | 54,580.00 | 167,820.00 | 222,400.00 |
| Reciprocal Method | 49,960.00 | 172,440.00 | 222,400.00 |
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