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 7,200 10,800 Asset value $2,000 $1,670 $2,500 $5,500 Department cost $36,000 $ 16,000 $64,000 $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 Sewing Department Department Production departments' total costs $ X $ х

Answer 1

Davis Snowflakes & Co.
Ans)
	Cutting Department	Sewing Department
Prodcution Department total cost	$                             83,400.00	$                       1,14,600.00
Step -(i)
Calculation of Ratio of Maintence cost to other Departments(machine Hours)
Security Department	Cutting Department	Sewing Department
10%	36%	54%
2000/(2000+7200+10800)	7200/(2000+7200+10800)	10800/(2000+7200+10800)
Calculation of Ratio of Service Department cost to other Departments(Assets Value)
Maintenace Department	Cutting Department	Sewing Department
20%	25%	55%
2000/(2000+2500+5500)	2500/(2000+2500+5500)	5500/(2000+2500+5500)
Step -(ii)
Security Department cost=$16000+.10* Maintenance Department cost---(i)
Maintenace Department cost=$36000+.20* Security Department cost----(ii)
Put the value of (i) in (II)
Maintenace Department cost=$36000+.20* ($16000+.10*Maintenance Department cost)
Maintenace Department cost=$36000+3200+.02 Maintenance Department cost
1-.02Maintenace Department cost=	$                             39,200.00
.98 Maintenance Department cost=$39200
Maintenance Departmen cost=($39200/.98)
Maintence Department cost=	$                             40,000.00
Security Department cost=$16000+.10*$40000
Security Department cost=	$                             20,000.00
Step -(III)
Departments	Maintenace Department	Security Department	Cutting Department	Sewing Department
Department cost	$                             36,000.00	$                           16,000.00	$                                                  64,000.00	$                       82,000.00
Allocation of Maintance Department cost	$                           -40,000.00	$                             4,000.00	$                                                  14,400.00	$                       21,600.00
Allocation of Security Departmen cost	$                               4,000.00	$                         -20,000.00	$                                                    5,000.00	$                       11,000.00
Total cost	$                                            -	$                                          -	$                                                  83,400.00	$                   1,14,600.00
Working
Allocation of Maintance Department cost		(40000*10%)	($40000*36%)	($40000*54%)
Allocation of Security Departmen cost	($20000*20%)		($20000*25%)	($20000*55%)