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 6,400 11,600 Asset value $2,000 $1,440 $3,000 $5,000 Department cost $42,480 $18,880 $62,000 $85,000 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

Answer 1

Step1 : Allocation Basis
		Maintenance Department	Security Department	Cutting Department	Sewing Department
						Total
	Machine hour		2000	6400	11600	20000
	Allocation		2000/20000	6400/20000	11600/20000
	Assets value	2000		3000	5000	10000
	Allocation	2000/10000		3000/10000	5000/10000
Step2: Apportionment cost		Maintenance Department	Security Department	Cutting Department	Sewing Department
	Cost Incured	42480	18880	62000	85000
		-42480	4248	13593.6	24638.4
			42480*2000/20000	42480*6400/20000	42480*11600/20000
		0	23128	75593.6	109638.4
		4625.6	-23128	6938.4	11564
		23128*2000/10000		23128*3000/10000	23128*5000/10000
		4626	0	82532	121202.4
		-4626	462.6	1480.32	2683.08
			4626*2000/20000	4626*6400/20000	4626*11600/20000
		0	463	84,012	1,23,885
		93	-463	139	232
		463*2000/10000		463*3000/10000	463*5000/10000
		93	0	84151.22	124116.98
		-93	9.3	29.76	53.94
			93*2000/20000	93*6400/20000	93*11600/20000
		0	9	84,181	1,24,171
		2	-9	3	5
		9*2000/10000		9*3000/10000	9*5000/10000
		2	0	84,184	1,24,175