Question

Support department cost allocation-reciprocal services method Becker Tabletops has two support departments ( Janitorial and Cafeteria) and two production departments (Cutting and Assembly). Relevant details for these departments are as follows: Support Department Cost Driver Janitorial Department Square footage to be serviced Cafeteria Department Number of employees Janitorial Department $310,000 50 10 Department costs Square feet Number of employees Cafeteria Department $169,000 5,000 3 Cutting Department $1,504,000 1,000 30 Assembly Department $680,000 4,000 10 Allocate the support department costs to the production departments using the reciprocal services method. Cutting Department Assembly Department Janitorial Department cost allocation Cafeteria Department cost allocation

Answer 1

Step 1)

Janitorial department = $ 310,000 + (10/50) cafeteria department .... Equation (1)

Cafeteria department = $ 169,000 + (5000/10,000) Janitorial department ... Equation (2)

Janitorial department = $ 310,000 + [1/5 {$169,000 + (5,000/10,000) janitorial department} ]

Janitorial department = $ 310,000 + $ 33,800 + 0.10 Janitorial department

0.90 Janitorial department = $ 343,800

Janitorial department = $ 343,800 / 0.90 = $ 382,000

Putting the value of janitorial department expenses in equation (1) we get,

$ 382,000 = $ 310,000 + (10/50) cafeteria department

$ 72,000 = 1/5 cafeteria department

Cafeteria department = $ 72,000 X 5/1 = $ 360,000

Step 2)

Janitorial department to cutting department :

$ 382,000 X 1,000 / 10,000 = $ 38,200

Janitorial department to Assembly department :

$ 382,000 X 4,000 / 10,000 = $ 152,800

Step 3)

Cafeteria department to cutting department :

$ 360,000 X 30/ 50 = $ 216,000

Cafeteria department to Assembly department :

$ 360,000 X 10/50 = $ 72,000

Step 4) Preparation of allocation table :

	Cutting Department	Assembly department
Janitorial department cost allocation	$ 38,200	$ 152,800
Cafeteria department cost allocation	$ 216,000	$ 72,000
Total =	$ 254,200	$ 224,800

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