Question

In: Accounting

During the past month, the following costs were incurred in the three production departments and two...

During the past month, the following costs were incurred in the three production departments and two service departments of Kim & Co.:

Using Department
Supplying Department Administration Factory Support Fabrication Assembly Finishing
Administration ? 0.40 0.20 0.10 0.30
Factory support 0.10 ? 0.10 0.20 0.60
Direct cost $ 570,000 $ 1,295,000 $ 1,650,000 $ 277,000 $ 247,000

Required:

Allocate service department costs to Fabrication, Assembly, and Finishing using the reciprocal method, and determine the total costs of Fabrication, Assembly, and Finishing after this allocation. (Negative amounts should be indicated by a minus sign. Do not round intermediate calculations.)

References

Solutions

Expert Solution

  • All working forms part of the answer
  • Working #1

Service Department

Direct Cost

% of service receivables from other service department

Let the Total cost be:

Administration

$      570,000.00

10%

From Factory Support

‘X’

Factory Support

$ 1,295,000.00

40%

From Administration

‘Y’

  • Base on above, Working #2

Equation #1

X

=

570000

+

10%

of

Y

X

=

570000

+

0.1Y

Equation #2

Y

=

1295000

+

40%

of

X

Y

=

1295000

+

0.4X

  • Working #3

Putting the Value of 'Y' into Equation #1

X

=

570000

+

(0.1 x [1295000 + 0.4X)

X

=

570000

+

(129500 + 0.04X)

X

=

570000

+

129500

+

0.04X

X

-

0.04X

=

570000

+

129500

0.96X

=

699500

X

=

(699500 / 0.96)

X

=

728645.8333 [Cost to be allocated]

Putting the Value of 'X' calculated above into Equation #2

Y

=

1295000

+

40%

of

X

Y

=

1295000

+

40%

x

728645.833

Y

=

1295000

+

291458.3333

Y

=

1586458.333 [Cost to be allocated]

  • Requirement solved, Allocation of Service Department Cost calculated above using given percentages.

Department

Supplying (Service Department)

Using Department

Administration

Factory Support

Fabrication

Assembly

Finishing

Direct cost [given]

$        570,000.00

$        1,295,000.00

$       1,650,000.00

$       277,000.00

$          247,000.00

Allocation of:

Administration

$      (728,645.83) [calculated in #3]

$            291,458.33

$          145,729.17

$         72,864.58

$          218,593.75

Factory support

$        158,645.83

$      (1,586,458.33) [calculated in #3]

$          158,645.83

$       317,291.67

$          951,875.00

Total cost after allocation have been made

$                          -  

$                              -  

$       1,954,375.00

$       667,156.25

$       1,417,468.75

ekkarill92 answered 1 year ago
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