value 400 points Caro Manufacturing has two production depar

value 4.00 points Caro Manufacturing has two production departments, Machining and Assembly, and two service departments, Maintenance and Cafeteria. Direct costs for each department and the proportion of service costs used by the various departments for the month of August follow of Services Used Department Direct Costs Maintenance Cafeteria Machining Assembly $135,000 66,000 45,000 34,000 0.4 0.2 0.3 0.2 0.3 0.6 Required Use the reciprocal method to allocate the service costs. (Matrix algebra is not required.) (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. From: Service department costs Cafeteria Total

Solution

Total service department costs=Direct costs of the service department + Cost allocated to the service department

S1 (Maintenance) = 45,000 + 0.6S2

S2 (Cafeteria) = 34,000 + 0.3S1

Substituting, the first equation into the second yields,

S2 = 34000 + 0.3(45000 + 0.6 S2)

S2=34000 + 13500 + 0.18 S2

0.82 S2 = 47500

S2= 47500/0.82 =57927

Substituting the value of S2 back into the first equation gives,

S1 = $45000 + 0.60 (57927)

S1 = $79756

Maintenance:

79756*0.3 =23927

79756*0.4=31902

79756*0.3=23937

Cafeteria:

57927*0.6 = 34756

57927*0.2 =11585

57927*0.2 =11586

	Cost	Allocation	to:
From:	Maintenance	Cafeteria	Machining	Assembly
Service department costs	45000	34000	0	0
Maintenance	-79756	23927	31902	23927
Cafeteria	34756	-57927	11585	11586
Total	0	0	43487	35513