During the past month the following costs were incurred in t

During the past month, the following costs were incurred in the three production departments and two service departments of Kim & Co.:

Required:

Allocate service department costs to Fabrication, Assembly, and Finishing using the reciprocal method, and determine the total costs of Fabrication, Assembly, and Finishing after this allocation. (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations.)

References

	Using Department
Supplying Department	Administration	Factory Support	Fabrication	Assembly	Finishing
Administration		?			0.40			0.20			0.10			0.30
Factory support		0.10			?			0.10			0.20			0.60
Direct cost	$	570,000		$	1,295,000		$	1,650,000		$	277,000		$	247,000

Solution

Answers

Service Department

Direct Cost

% of service receivables from other service department

Let the Total cost be:

Administration

$      570,000.00

10%

From Factory Support

‘X’

Factory Support

$ 1,295,000.00

40%

From Administration

‘Y’

Equation #1

X

=

570000

+

10%

of

Y

X

=

570000

+

0.1Y

Equation #2

Y

=

1295000

+

40%

of

X

Y

=

1295000

+

0.4X

Putting the Value of \'Y\' into Equation #1

X

=

570000

+

(0.1 x [1295000 + 0.4X)

X

=

570000

+

(129500 + 0.04X)

X

=

570000

+

129500

+

0.04X

X

-

0.04X

=

570000

+

129500

0.96X

=

699500

X

=

(699500 / 0.96)

X

=

728645.8333 [Cost to be allocated]

Putting the Value of \'X\' calculated above into Equation #2

Y

=

1295000

+

40%

of

X

Y

=

1295000

+

40%

x

728645.833

Y

=

1295000

+

291458.3333

Y

=

1586458.333 [Cost to be allocated]

Department

Supplying (Service Department)

Using Department

Administration

Factory Support

Fabrication

Assembly

Finishing

Direct cost [given]

$        570,000.00

$        1,295,000.00

$       1,650,000.00

$       277,000.00

$          247,000.00

Allocation of:

Administration

$      (728,645.83) [calculated in #3]

$            291,458.33

$          145,729.17

$         72,864.58

$          218,593.75

Factory support

$        158,645.83

$      (1,586,458.33) [calculated in #3]

$          158,645.83

$       317,291.67

$          951,875.00

Total cost after allocation have been made

$                          -  

$                              -  

$       1,954,375.00

$       667,156.25

$       1,417,468.75

Service Department	Direct Cost	% of service receivables from other service department	Let the Total cost be:
Administration	$      570,000.00	10%	From Factory Support	‘X’
Factory Support	$ 1,295,000.00	40%	From Administration	‘Y’