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In: Accounting

Tuscaloosa National Bank has two service departments, the Human Resources (HR) Department and the Computing Department....

Tuscaloosa National Bank has two service departments, the Human Resources (HR) Department and the Computing Department. The bank has two other departments that directly service customers, the Deposit Department and the Loan Department. The usage of the two service departments’ output for the year is as follows:
   

User of Service Provider of Service
HR Computing
HR 0 25 %
Computing 20 % 0
Deposit 70 % 65 %
Loan 10 % 10 %

  
The budgeted costs in the two service departments for the year are as follows:

HR $ 559,000
Computing 788,500

  
Required:
Use the reciprocal-services method to allocate the budgeted costs of the HR and Computing departments to the Deposit and Loan departments. (Do not round your intermediate calculations and round final answers to the nearest dollar amount.)

Solutions

Expert Solution

Let the total cost of HR and Computing be x and y
x = $ 559000 + 25% of y or, $ 559000 + 0.25y (i)
y = $ 788500 + 20% of x or, $ 788500 + 0.20x (ii)
Putting the value of x in equation (ii), we get
y = $ 788500 + 0.20($ 559000 + 0.25y)
y = $ 788500 + $ 111800 + 0.05y
0.95y = $ 900300
y = $ 947684
Therefore,
x = $ 559000 + 0.25($ 947684)
= $ 795921
Allocation of cost
Particulars HR Computing Deposit Loan
Direct costs $ 5,59,000.00 $ 7,88,500.00
Allocating cost of:
HR $ -7,95,921.00 $ 1,59,184.20 $   5,57,144.70 $    79,592.10
Computing $ 2,36,921.00 $ -9,47,684.00 $   6,15,994.60 $    94,768.40
Allocated cost $                    -   $                    -   $       11,73,139 $      1,74,361

ekkarill92 answered 1 year ago
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