Question
In: Economics
Solexx Corporation allocates its service department overhead costs to producing departments. This information is for the month of Ju
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.)
Solutions
Expert Solution
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 | $ - | $ |
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 |
Ramesh R answered 2 years agoRelated Solutions
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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
$
486,000
$
657,000
Service provided to departments
Maintenance
—
5
%
Utilities
10
%
—
Producing—A
20
40
Producing—B
70
55
Totals
100
%
100
%
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