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In: Accounting

BluStar Company has two service departments, Administration and Accounting, and two operating departments, Domestic and International....

BluStar Company has two service departments, Administration and Accounting, and two operating departments, Domestic and International. Administration costs are allocated on the basis of employees, and Accounting costs are allocated on the basis of number of transactions. A summary of BluStar operations follows: Administration Accounting Domestic International Employees – 28 36 36 Transactions 38,000 – 20,000 80,000 Department direct costs $ 363,000 $ 141,000 $ 955,000 $ 3,750,000

Allocate the cost of the service departments to the operating departments using the reciprocal method. (Do not round intermediate calculations. Negative amounts should be indicated by a minus sign.)

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Reciperocal Mathod To
Admin Accounting Domestic International
From
Department Cost $ 363,000 $    141,000 $   955,000 $    3,750,000
Administration $                                                            1 $-435,400 $    121,912 $   156,744 $       156,744
Accounting in Accounting ratio $    72,400 $ -263,296 $     38,159 $       152,737 R/off
Total $            -0 $          -384 $1,149,903 $    4,059,481
Admin Accounting
Admin $                                                363,000 27.54%
Accounting $                                                141,000 28.00%
Dom $                                                955,000 36.00% 14.49%
Int $                                             3,750,000 36.00% 57.97%
Admin= 363000+0.2754 of Accounting Eq1
Accounting= 141000+0.28 of Admin Eq2
Substituting the value of Accounting in Eq1
Admin= 363000+0.2754(141000+0.28 of Admin)
Admin= 363000+38831+0.0771 of admin $ 38,831.40          0.0771
Admin-0.0771 Admin= $                                                401,831 $    401,831
0.9229 Admin $                                                401,831          0.9229
Admin= 401831/0.9229
Admin= $                                                435,400
Substituting the value of Admin in Eq 2
Accounting= 141000+0.28 of Admin
Accounting= 141000+(0.28*436773)
Accounting= $                                                263,296

ekkarill92 answered 2 years ago
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