Question

Marin Company produces two software products (Cloud-X and Cloud-Y) in two separate departments (A and B). These products are highly regarded network maintenance programs. Cloud-X is used for small networks and Cloud-Y is used for large networks. Marin is known for the quality of its products and its ability to meet dates promised for software upgrades. Department A produces Cloud-X, and department B produces Cloud-Y. The production departments are supported by two support departments, systems design and programming services. The sources and uses of the support department time are summarized as follows: From To Total Labor Hours Design Programming Department A Department B Design - 5,000 1,000 9,000 15,000 Programming 400 - 600 1,000 2,000 The costs in the two service departments are as follows: Design Programming Labor and materials (all variable) $ 92,000 $ 61,200 Depreciation and other fixed costs 65,200 4,000 Total $ 157,200 $ 65,200 Required: 1. Determine the total support costs allocated to each of the producing departments using (a) the direct method, (b) the step method (design department goes first), and (c) the reciprocal method? (Do not round intermediate calculations. Round your final answer to nearest whole dollar amount.)

Answer 1

Solution a:

From	Service Department Cost Allocation - Direct Method
	Service Department		Production Departments
	Design	Programming	Department A	Department B
Direct charges of department	$157,200.00	$65,200.00
Design (1:9)	-$157,200.00		$15,720.00	$141,480.00
Programming (6:10)		-$65,200.00	$24,450.00	$40,750.00
Total	$0.00	$0.00	$40,170.00	$182,230.00

solution b:

From	Service Department Cost Allocation - Step Method (Allocation of Design first)
	Service Department		Production Departments
	Design	Programming	Department A	Department B
Direct charges of department	$157,200.00	$65,200.00
Design (5:1:9)	-$157,200.00	$52,400.00	$10,480.00	$94,320.00
Programming (6:10)		-$117,600.00	$44,100.00	$73,500.00
Total	$0.00	$0.00	$54,580.00	$167,820.00

solution c:

Service department cost = Direct Cost + Allocated Cost

Design Department Cost = $157,200 + [400 / 2000]* Programming Cost

= $157,200 + 0.20*Programming cost

Programming Department Cost = $65,200 + [5/ 15]* Design Cost

= $65,200 + 1/3 * Design Cost

Programming Cost = $65,200 + 1/3 ($157,200 + 0.20*Programming Cost)

Programming Cost = $65,200 + $52,400 + 0.0666666*Programming Cost

Programming Cost = $117,600 / 0.93333333 = $126,000

Design Cost = $157,200 + 0.20*$126,000 = $182,400

From	Service Department Cost Allocation - Reciprocal Method
	Service Department		Production Departments
	Design	Programming	Department A	Department B
Direct charges of department	$157,200.00	$65,200.00
Design (5:1:9)	-$182,400.00	$60,800.00	$12,160.00	$109,440.00
Programming (4:6:10)	$25,200.00	-$126,000.00	$37,800.00	$63,000.00
Total	$0.00	$0.00	$49,960.00	$172,440.00