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 6,800 11,200 Asset value $2,000 $1,390 $3,000 $5,000 Department cost $38,160 $ 16,960 $66,000 $80,000 Determine the total cost of each production department after allocating all support department costs to the production departments using the reciprocal services method. Cutting Sewing Department Department Production departments' total costs $ 14,400 X $ 21,600 X Feedback Check My Work The reciprocal services method considers all inter-support-department service, and thus is the most accurate of the three support department allocation methods. The proportional usage of each support department's cost driver by the other departments to which its costs are to be allocated must be determined. Then, the support department costs are allocated simultaneously among the departments.

Answer 1

Answer:

	Cutting department	Sewing department
Production departments total costs	86,776	114,344

Calculation:

First, we need to calculate the percentage of Maintenance department's cost to be allocated to Security department, Cutting department, and Sewing department.

It is calculated by dividing the machine hours of each department by the sum of machine hours of Departments Security, Cutting, and Sewing.

Percentage of Maintenance department cost allocated to Security department = Security departments Machine Hours / Sum of Security, Cutting, Sewing Machine Hours = 2,000 / (2,000 + 6,800 + 11,200) = 2,000 / 20,000 = 10%

Percentage of Maintenance department cost allocated to Cutting department = Cutting departments Machine Hours / Sum of Security, Cutting, Sewing Machine Hours =6,800 / (2000 + 6,800 + 11,200) = 6,800 / 20,000 = 34%

Percentage of Maintenance department cost allocated to Sewing department= Sewing departments Machine Hours / Sum of Security, Cutting, Sewing Machine Hours =11,200 / (2,000 + 6,800 + 11,200) = 11,200 / 20,000 = 56%

Then we need to calculate the percentage of Security department's cost to be allocated to Maintenance department, Cutting department, and Sewing department.

It is calculated by dividing the asset value of each department by the sum of the asset values of Departments Maintenance, Cutting, and Sewing.

Percentage of Security department cost allocated to Maintenance department = Maintenance departments Asset Value / Sum of Maintenance, Cutting, and Sewing’s Asset Value = 2,000 / (2,000 + 3,000 + 5,000) = 2,000 / 10,000 = 20%

Percentage of Security department cost allocated to Cutting department= Cutting departments Asset Value / Sum of Maintenance, Cutting, and Sewing’s Asset Value = 3,000 / (2,000 + 3,000 + 5,000) = 3,000 / 10,000 = 30%

Percentage of Security department cost allocated to Sewing department= Sewing departments Asset Value / Sum of Maintenance, Cutting, and Sewing’s Asset Value = 5,000 / (2,000 + 3,000 + 5,000) = 5,000 / 10,000 = 50%

Then we need to find the Cost allocated to Maintenance department and Cost allocated to Security department.

Let X = Cost allocated to Maintenance department

Let Y = Cost allocated to Security department

X = Maintenance department cost + (Maintenance departments Proportional Usage x Y)

X = 38,160 + (0.20 x Y)

Y = Security department cost + (Security departments Proportional Usage x X)

Y = 16,960 + (0.10 x X)

So, to find the X

X = 38,160 + (0.20 x Y)

X = 38,160 + 0.20 x (16,960 + 0.10Y)

X = 38,160 + 3,392 + 0.02Y

X = 42,400

Then, to find Y using X which is already calculated:

Y= 16,960 + (0.10 x X)

Y= 16,960 + (0.10 x 42,400)

Y= 16,960 + 4,240

Y = 21,200

Next step is to calculate Maintenance department's costs allocated to Departments Security, Cutting, and Sewing.

It is calculated by multiplying the total cost of Maintenance department by the percentage allocation of Departments Security, Cutting, and Sewing

Maintenance department cost allocated to Security department = Maintenance department Total Cost x Percentage allocation to Security department = 42,400 x 10% = 4,240

Maintenance department cost allocated to Cutting department = Maintenance department Total Cost x Percentage allocation to Cutting department = 42,400 x 34% = 14,416

Maintenance department cost allocated to Sewing department= Maintenance department Total Cost x Percentage allocation to Sewing department = 42,400 x 56% = 23,744

Next, we need to calculate the Security department's cost allocated to Departments Maintenance, Cutting, and Sewing.

It is calculated by multiplying the total cost of Security department by the percentage allocation of Departments Maintenance, Cutting, and Sewing.

Security department cost allocated to Maintenance department= Security department Total Cost x Percentage allocation to Maintenance department = 21,200 x 20% = 4,240

Security department cost allocated to Cutting department= Security department Total Cost x Percentage allocation to Cutting department= 21,200 x 30% = 6,360

Security department cost allocated to Sewing department= Security department Total Cost x Percentage allocation to Sewing department= 21,200 x 50% = 10,600

Atlast we need to find the total cost of the production departments, Departments Cutting and Sewing by totaling the production department's cost and the cost allocated by the support departments

Total Cost of Cutting department = Cutting department cost + Cost allocation by Maintenance department to Cutting department + Cost allocation by Security department to Cutting department = 66,000 + 14,416 + 6,360 = 86,776

Total Cost of Sewing department = Sewing department cost + Cost allocation by Maintenance department to Sewing department + Cost allocation by Security department to Sewing department = 80,000 + 23,744 + 10,600 = 114,344