Question

Exercise 11-33 Cost Allocation: Reciprocal Method (LO 11-4)

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		?			455			455			2,590
Labor-hours		315			?			294			1,491
Department direct costs	$	11,000		$	23,000		$	25,000		$	23,000

Required:

Allocate the service department costs 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.)

Answer 1

The key to using the reciprocal method is to keep reallocating the two service department (maintenance and personnel) costs until the service departments reach a zero balance.
Machine hour percentages--Allocation of Maintenance Costs
455 + 455 + 2,590 = 3,500 total machine hrs
Personnel
455 / 3,500 = 13%
Printing
455 / 3,500 = 13%
Developing
2,590 / 3,500 = 74%
Labor hr. percentages--Allocation of Personnel costs
315 + 294 + 1,491 = 2,100 total labor hrs.
Maintenance
315 / 2,100 = 15%
Printing
294 / 2,100 = 14%
Developing
1,491 / 2,100 = 71%
	Service
	Maintenance	Personnel	Printing	Developing
Costs before allocation	11000	23000	25000	23000
Allocate maintenance costs	-11000	1430	1430	8140
		(11000X13%)	(11000X13%)	(11000X74%)
	0	24430
Allocate personnel costs	3664.5	-24430	3420.2	17345.3
	(24430X15%)		(24430X14%)	(24430X71%)
Allocate maintenance costs	-3664.5	476.39	476.39	2711.73
		(3664.5X13%)	(3664.5X13%)	(3664.5X74%)
Allocate personnel costs	71.46	-476.39	66.69	338.24
	(476.39X15%)		(476.39X14%)	(476.39X71%)
Allocate maintenance costs	-71.46	9.29	9.29	52.88
		(71.46X13%)	(71.46X13%)	(71.46X74%)
Allocate personnel costs	1.39	-9.29	1.3006	6.5959
	(9.29X15%)		(9.29X14%)	(9.29X71%)
Allocate maintenance costs	-1.39	0	0	1.39
Total costs	0.00	0.00	30403.87	51596.13