Question

In: Accounting

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

Caro Manufacturing has two production departments, Machining and Assembly, and two service departments, Maintenance and Cafeteria. Direct costs for each department and the proportion of service costs used by the various departments for the month of August follow:

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

  1. Maintenance Department Cost = $51,000 + 0.6 * Cafeteria Cost
  2. 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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