Caro Manufacturing has two production departments, Machining and Assembly, and two service departments, Maintenance and Cafeteria....

		Cost allocation to:
Department	direct cost	Maintenance	Cafeteria	Machining	Assembly
Machining	140000
assembly	83000
maintenance	51000	----	0.1	0.5	0.4
cafeteria	35000	0.6	---	0.2	0.2

Required:

Use the reciprocal method to allocate the service costs. (Matrix algebra is not required.) (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Round your final answers to the nearest whole dollar amounts.)

Solutions

Expert Solution

Service department cost = Direct Cost + Allocated Cost

Maintenance Department Cost = $51,000 + 0.6 * Cafeteria Cost
Cafeteria Department Cost = $35,000 + 0.1 * Maintenance Cost

"Now we put Formula Number 1 in Formula Number 2 "

Cafeteria Department Cost = $35,000 + 0.10 * Maintenance Cost

Cafeteria Cost = $35,000 + 0.10 ($51,000 + 0.60*Cafeteria Cost)
Cafeteria Cost = $35,000 + $5,100 + 0.06 * Cafeteria Cost
- Cafeteria Cost = $40,100 / 0.94 = $42,660
Maintenance Department Cost = $51,000 + 0.6 * $42,660 = $76,596

Statement showing allocation of the service costs Using the reciprocal method

		Cost Allocation To :
From	Maintenance $	Cafeteria $	Machining $	Assembly $
Service Department Cost	51,000	35,000
Maintenance (0.1:0.5:0.4)	-76,596	7,660	38,298	30,638
Cafeteria (0.6:0.2:0.2)	25,596	-42,660	8,532	8,532
Total	-	-	46,830	39,170

ekkarill92 answered 1 year ago

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