Question

Barstow Manufacturing Company has two service departments — product design and engineering support, and two production departments — assembly and finishing. The distribution of each service department's efforts to the other departments is shown below:

FROM	TO
	Design			Support			Assembly			Finishing
Design	0	%		10	%		30	%		60	%
Support	20	%		0	%		45	%		35	%

The direct operating costs of the departments (including both variable and fixed costs) were as follows:

Design	$	140,000
Engineering Support	$	160,000
Assembly	$	550,000
Finishing	$	840,000

The total cost accumulated in the finishing department using the reciprocal method is(calculate all ratios and percentages to 4 decimal places, for example 33.3333%, and round all dollar amounts to the nearest whole dollar):

Multiple Choice

• $1,007,449.

• $627,143.

• $1,890,000.

• $682,551.

• $1,062,857.

Answer 1

Answer)

Calculation of total cost of finishing department using Reciprocal Method

Departmental overheads before allocation	Producing Departments	Service Departments	Total
Assembling	Finishing	Product Design	Engineering Support
$550,000	$840,000	$140,000	$160,000	$1,690,000
Allocation of overheads:
Product Design (30%, 60%, 10%)	52653	105306	-175510	17551	0
Engineering Support (45%, 35%, 20%)	79898	62143	35510	-177551	0
Total departmental overhead	$682,551	$1,007,449	$0	$0	$1,690,000

Therefore, total cost allocated to finishing department is $ 1,007,449.

Working Note:

Department	Departmental overhead Before distribution	Services Provided
Product design	Engineering Support
Product Design	$140,000	0%	20%
Engineering Support	$160,000	10%	0%
Assembling	$550,000	30%	45%
Finishing	$840,000	60%	35%
Total Department overhead	$1,690,000	100%	100%

Let the total cost of Product design department be “x” and that of Engineering support department be “y”.

Equations:

x = $ 140,000 + 0.20 y                       ….. Equation 1

y = $ 160,000 + 0.10x                         ….. Equation 2

Substituting the value of y in equation 1 we get

x = $ 140,000 + 0.20 ($ 160,000 + 0.10x)

x = $ 140,000 + $ 32,000 + 0.02x

x – 0.02x = $ 172,000

x = $ 175,510 (approximately)

Substituting the value of x in Equation 2 we get,

y = $ 160,000 + 0.10 X $175,510

y = $ 177,551