Question

HSU Corporation has two service departments, Maintenance and Administration, and two producing departments A and B.

The direct costs of each department for the last year is as follows:

Administration                $   80,000

Maintenance                       60,000

Department A                      5,000

Department B                      20,000

Information on the proportion of services supplied and used is:

	User Departments
	Administration	Maintenance	Dept. A	Dept. B
Administration		10%	60%	30%
Maintenance	30%		20%	50%

Using the reciprocal method of service department cost allocation Administration costs allocated to Department B is:

	a.	$24,000
	b.	$39,000
	c.	$30,309
	d.	$60,619

Answer 1

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Correct option is: c. $30,309
Workings:
	To
From	Administration	Maintenance	Dept. A	Dept. B
Department cost	$           80,000	$        60,000	$         5,000	$         20,000
Administration	$     -1,01,031	$        10,103	$       60,619	$         30,309
Maintenance	$           21,031	$       -70,103	$       14,021	$         35,052
Total Cost	$                    -	$                  -	$       79,639	$         85,361

Workings:
Let Total Administration department cost be x and Maintenance Department be y
x = 80000 + (0.3* y)
y = 60000 + (0.1 * x)
By solving above:
y = 60000 + (0.1 * x)
y = 60000 + [0.1 * (80000 + (0.3* y))]
y = $70103
also,
x = 80000 + (0.3* y)
x = 80000 + (0.3* 70103)
x = $101031