Logan Products has two production departments assembly and finishing These are supported by two service departments-sourcing...

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Logan Products has two production departments assembly and finishing These are supported by two service departments-sourcing

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Answer 1

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Answer #1

1.

(a)

Direct Method
	Working	Assembling	Working	Finishing
Initial production department cost		$416,000		$261,000
Add: Source dept. cost allocation	[$174000 × (40,000 ÷ 100,000)]	$69,600	[$174000 × (60,000 ÷ 100,000)]	$104,400

Add: Operating dept. cost allocation	[$220000 × (60,000 ÷ 110,000)]	$120,000	[$220000 × (50,000 ÷ 110,000)]	$100,000

Total Cost		$605,600		$465,400

______________________________________________________________________

(b)

Sourcing department cost first allocated to other department.

Step Method
	Service Department	Production Department
	Sourcing	working	Operation	working	Assembling	working	Finishing
Department Cost Before Allocation	$174,000		$220,000		$416,000		$261,000

Allocation:

Souurcing department	($174,000)	[$174000 × (20,000 ÷ 120,000)]	$29,000	[$174000 × (40,000 ÷ 120,000)]	$58,000	[$174000 × (60,000 ÷ 120,000)]	$87,000

Operation department	-	($220,000 + $29,000)	($249,000)	[$249000 × (60,000 ÷ 110,000)]	$135,818	[$249000 × (50,000 ÷ 110,000)]	$113,182

Total Cost after allocation	$0		$0		$609,818		$461,182

_________________________________________________________________________

(c)

Reciprocal department:

Cost of service department
Sourcing	$174,000
Operation	$22,000

Share of distribution of service department as follows:

Sourcing = $174000 + (10000/120000) of operation.............(i)

Operation = $220000 + (20000/120000) of sourcing............(ii)

Putting the value of operation in equation (i)

Sourcing = $174000 + (10000/120000) of $220000 + (20000/120000) of sourcing

Solving the above equation we get

Sourcing = $157860

Put sourcing in equation (ii) we get operation

operation = $246310

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