Question

University Printers has two service departments (Maintenance and Personnel) and two operating departments (Printing and Developing). Management has decided to allocate maintenance costs on the basis of machine-hours in each department and personnel costs on the basis of labor-hours worked by the employees in each.

The following data appear in the company records for the current period:

	Maintenance			Personnel			Printing			Developing
Machine-hours		−			504			648			2,448
Labor-hours		360			−			252			1,188
Department direct costs	$	12,000		$	27,000		$	27,000		$	18,000

Required:

Allocate the service department costs using the reciprocal method. (Matrix algebra is not required because there are only two service departments.)

	Cost Allocation To: From: Maintenance Personnel Printing Developing Service department costs Maintenance Personnel Total $0 $0 $0 $0

Answer 1

Setup the formula to cost alloaction

Maintenance cost = Maintenance department cost +Alloacated from personnel department cost.

Personnel cost = Personnel department cost + Alloacated from Maintenance department cost.

Maintenance cost = $12,000 + (360/1,8/00 personnel departmrnt cost.

Personnel cost = $27,000 + (504/3,600 of maintenace department cost)

M = $12,000 + .2*($27,000 + (.14 of M)

M = $12,000 + ($5,400+.028 of M)

.972 M = $17,400 (Rounded)

M = $17,400/.972 = $17,901.23

Personnel cost = $27,000 + ($17,901*14%) = $29,506.17

Allocation base

	Maintenance	Personnel	Printing	Developing
Maintenance cost alloacated	-	14%(504/3,600)	18%(648/3,600)	68%(2,448/3,600)
Personnel cost allocated	20%(360/1,800)	-	14%(252/1,800)	66%(1,188/1,800)

Cost Allocation To:

	Maintenance	Personnel	Printing	Developing
Department Cost	$12,000	$27,000	$27,000	$18,000
Maintenance cost alloacated	($17901.23)	$2,506.17	$3,222.22	$12,172.83
Personnel cost allocated	$5,901.23	($29,506.17)	$4,130.86	$19,474.07
Total	0	0	$34,353.08	$49,646.9