Question

Support department cost allocation-reciprocal services method Davis Snowflake Coproduces 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 7,200 10,800 Asset value $2.000 $1,470 $1,500 $6,500 Department cost $41,750 $18,560 $67,000 $80,000 Determine the total cost of each production department after allocating all support department costs to the production departments using the reciprocal service method. Cutting Sewing Department Department Production departments total costs 14,400 x 21,600 X The reciprocal services method considers all inter support department service, and thus is the most accurate of the three support department location method the proportional usage of each support department's cost driver by the other departments to which is costs are to be allocated must be determined. Then the sport department costs are allocated simultaneously among the departments

Answer 1

Answer:

Determining allocation basis

Maintenance Department

Department	Mach Hrs	% of total
Main.	-
Security	2000	10%
cutting	7200	36%
Sewing	10800	54%
Total	20000	100%

Security Department

Department	asset Value	% of total
Main.	2000	20%
Security	-	-
cutting	1500	15%
Sewing	6500	65%
Total	10000	100%

Setting of equation

X be the maintenance cost and Y be the security cost

X = 41760 + .20Y

Y = 18560 + .01 X = 18560 + .10(41760 +.20Y)

= 18560 +4176+.02y

y = 23200

Total of security dept is 23200

total cost of main dept is 41760 + .20(23200) = 46400

Total cost of cutting dept = 67000 +36% of 46400 + 15% of 23200 = 67000 +16704+3480= 87184

Total cost of sewing dept =80000 + 54% of 46400 + 65% of 23200 = 80000+25056+15080 = 120136