Question

In: Accounting

Midland Resources has two production departments (Fabrication and Assembly) and three service departments (Engineering, Administration, and...

Midland Resources has two production departments (Fabrication and Assembly) and three service departments (Engineering, Administration, and Maintenance). During July, the following costs and service department usage ratios were recorded.

Supplying Department Using Department
Engineering Administration Maintenance Fabrication Assembly
Engineering 0 40 % 0 15 % 45 %
Administration 20 % 0 25 % 45 % 10 %
Maintenance 0 30 % 0 15 % 55 %
Direct cost $ 42,000 $ 248,550 $ 45,000 $ 230,000 $ 80,000


Required:

Allocate the service department costs to the two operating departments using the reciprocal method. (Matrix algebra is not required because there are only two service departments.) (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations. Round your final answers to the nearest whole dollar amounts.)

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

Solutions

Expert Solution

Allocated to:
From Costs Fabrication Assembly
Engineering $      1,08,000 $       16,200 $     48,600
Administration $      3,30,000 $   1,48,500 $     33,000
Maintenance $      1,27,500 $       19,125 $     70,125
Total Cost $   1,83,825 $ 1,51,725
Workings:
Let Total Engineering department cost be x and of Administration be y and of Maintenance be z
x = 42000 + (0.20 y)
y = $248550 + (0.40 x) + (0.30 z)
z = 45000 + (0.25 y)
By solving above:
y = $248550 + [0.40 (42000 + (0.20 y))] + [0.30 (45000 + (0.25 y))]
y = $330000
also,
x = 42000 + (0.20 * $330000)
x = $108000
and,
z = 45000 + (0.25 * $330000)
z = $127500

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