Question

Problem 7-38 Departmental Cost Allocation (LO 7-3] Solexx Corporation allocates its service department overhead costs to producing departments. This information is for the month of June: Service Departments Maintenance Utilities Overhead costs incurred $513,000 $ 708,000 Service provided to departments Maintenance 5% Utilities 10% Producing-A 20 40 Producing-B 70 55 Totals 100% 100% Required: What is the amount of maintenance and utilities department costs distributed to producing departments A and B for June using (1) the direct method, (2) the step method (maintenance department first), and (3) the reciprocal method? (Round percentage calculations to 4 decimal places (e.g., 33.3333%), do not round Intermediate calculations and round your final answers to the nearest dollar amount.) Answer is not complete. Producing Department А Producing Department B Total Producing Department Cost $ 412,105 $ 1,221,000 $ 0 $ $ 1. 114,000 405,067 The direct method The step method The reciprocal method 298,105 815,933 2. $ $ 3. < Prev 4 of 6 Next >

Answer 1

Answer

	Department A	Department B	Total
Direct method	$ 412,105	$ 808,895	$ 1,221,000
Step method	$        422,305	$        798,695	$ 1,221,000
Reciprocal method	$ 415,477.39	$ 805,522.61	$ 1,221,000

Calculations:

DIRECT METHOD

	Department A	Department B	Maintenance	Utilities
Operating costs	$ -	$ -	$ 513,000	$ 708,000
Maintenance	$ 114,000	$       399,000	$    (513,000)
Utilities	$       298,105	$       409,895		$ (708,000)
Total	$       412,105	$       808,895	$                -	$              -

STEP METHOD

	Department A	Department B	Maintenance	Utilities
Operating costs	$ -	$                  -	$ 513,000	$ 708,000
Maintenance	$ 102,600	$        359,100	$ (513,000)	$ 51,300
Total	$ 102,600	$        359,100	$                 -	$ 759,300
Utilities	$        319,705	$        439,595	$                 -	$ (759,300)
Total	$        422,305	$        798,695	$                 -	$ -

RECIPROCAL METHOD

Let the total cost of	Maintenance	be x.
Let the total cost of	Utilities	be y.

.

So,

x = 513,000 + 0.05y	---------Equation 1
y = 708,000 + 0.1x	---------Equation 2

Solving Equation 1 and 2:

Substitute value of 'y' from equation 2 in Equation 1-

So, x = 513,000 + 0.05 (708,000 + 0.1x)

So, x = $ 551,155.78

The total cost of Maintenance is $ 551,155.78

.

Putting the value of x in equation 2-

So, y = 708,000 + 0.1 * 551,155.78

So, y = $ 763,115.58

The total cost of Utilities is $ 763,115.58

.

	Department A	Department B	Maintenance	Utilities
Total cost	$ -	$                  -	$ 513,000	$ 708,000
Maintenance	$    110,231.16	$ 385,809.04	$ (551,155.78)	$ 55,115.58
Total cost	$    110,231.16	$ 385,809.04	$ (38,155.78)	$ 763,115.58
Utilities	$ 305,246.23	$ 419,713.57	$ 38,155.78	$ ( 763,115.58)
Total cost	$ 415,477.39	$ 805,522.61	$                   -	$ -