Question

Zeta Company budgets the following amounts for its Buildings & Grounds and Computer Services Departments in servicing each other and the two manufacturing divisions of Signs and Mailers: ___________________Used By________________________________ Supplied By Building & Grounds Computer Services Signs Mailers Buildings & Grounds — 0.20 0.60 0.20 Computer Services 0.15 — 0.30 0.55 The actual results for the time period were as follows: ___________________Used By________________________________ Supplied By Building & Grounds Computer Services Signs Mailers Buildings & Grounds — 0.10 0.60 0.30 Computer Services 0.25 — 0.35 0.40 Actual cost data for each department are: Fixed Variable Buildings & Grounds $ 50,000 $90,000 Computer Services $100,000 $21,000 a. The equation to determine the total variable costs of Computer Services using the preferred allocation basis, for the reciprocal allocation method b. Total variable costs allocated from Computer Services to Mailers Department, using the preferred allocation basis, by the step-down allocation method (begin with Building & Grounds) c. Total fixed costs allocated from Buildings & Grounds to the Signs Department, using the preferred allocation basis, by the direct allocation method

Answer 1

ANSWER:

(a)

	Budgeted usages
Reciprocal Method	Building & Grounds	Computer	Signs	Mailers	Total
Building & Grounds		0.20	0.60	0.20	1.00
Computer Services	0.15		0.30	0.55	1.00
Variable cost	90,000.00	21,000.00			111,000.00
Let variable cost of Building & Grounds be B&G and variable cost of Computer Services be CS.
So, CS= 21000+ 0.20 of B&G

(b)

	Budgeted usages
Step Down Method	Building & Grounds	Computer	Signs	Mailers	Total
Building & Grounds		0.20	0.60	0.20	1.00
Variable cost	90,000.00				90,000.00
Allocation	(90,000.00)	18,000.00	54,000.00	18,000.00	-
Computer Services	0.15		0.30	0.55	1.00
Computer Services %			0.35	0.65	1.00
Variable cost		21,000.00			21,000.00
Total Variable cost		39,000.00
Allocation		(39,000.00)	13,764.71	25,235.29	-
So answer is $ 25,235.

(c)

Direct Method	Building & Grounds	Computer	Signs	Mailers	Total
Building & Grounds		0.20	0.60	0.20	1.00
Building & Grounds %			0.75	0.25	1.00
Fixed cost	50,000.00				50,000.00
Allocation	(50,000.00)		37,500.00	12,500.00	-
So answer is $ 37,500.

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