Question

Support department cost allocation-reciprocal services method Davis Snowflake & Co. produces Christmas stockings in its Cutting and Sewing departments. The Maintenance and Security departments support the production of the stockings. Costs from the Maintenance Department are allocated based on machine hours, and costs from the Security Department are allocated based on asset value. Information about each department is provided in the following table: Maintenance Security Cutting Sewing Department Department Department Department Machine hours 800 2,000 7,600 10,400 Asset value $2,000 $1,400 $2,500 $5,500 Department cost $30,240 $13,440 $65,000 $82,000 Determine the total cost of each production department after allocating all support department costs to the production departments using the reciprocal services method. Cutting Department Production departments' total costs $ 93,300.2 X Sewing Department $ 127,084. X

Answer 1

Determining allocation basis

Maintenance Department

Department	Mach Hrs	% of total
Main.	-
Security	2000	10%
cutting	7600	38%
Sewing	10400	52%
Total	20000	100%

Security Department

Department	asset Value	% of total
Main.	2000	20%
Security	-	-
cutting	2500	25%
Sewing	5500	55%
Total	10000	100%

Setting of equation

X be the maintenance cost and Y be the security cost

X = 30240 + .20Y

Y = 13440 + .01 X = 13440 + .10(30240+.20Y)

= 13440 +3024 +.02y

y = 16800

Total of security dept is 16800

total cost of main dept is 30240 + .20(16800) = 33600

Total cost of cutting dept = 65000+38% of 33600 + 25 % of 16800 = 65000+12768+4200 = 81968

Total cost of sewing dept =85000 + 52% of 33600 + 55% of 16800 = 85000+17472+9240 = 111712