Question

Bolton Corp has two service departments, Maintenance and Personnel. Maintenance Department costs of $300,000 are allocated on the basis of budgeted maintenance-hours. Personnel Department costs of $100,000 are allocated based on the number of employees. The costs of operating departments A and B are $160,000 and $240,000, respectively. Data on budgeted maintenance-hours and number of employees are as follows:

	Support Departments		Production Departments
	Maintenance Department	Personnel Department	A	B
Budgeted costs	$300,000	$100,000	$160,000	$240,000
Budgeted maintenance-hours	NA	800	1,200	600
Number of employees	50	NA	200	600

Under full reciprocal method, what is the total cost of Department B after allocation of service department costs? (Round up ratios to the 4^th decimal point, and $ amount to the 2nd decimal point )

Question 1 options:

	$444,991.63
	$450,151.98
	$379,830.00
	$210,151.98

Answer 1

	Maintenance	personnel	A	B
% of allocation of maintenance (800+1200+600=2600)	0	800/2600= 30.77%	1200/2600 46.15%	600/2600=23.08%
% of allocation of personnel(50+200+600=850)	50/850= 5.88%	0	200/850=23.53%``	600/850= 70.59%

let the total cost of maintenance department be "X" and that of personnel be Y

X = 300000+ .0588 Y                 [Equation1 ]

Y= 100000 + .3077 X

putting the value of equation 1

Y =100000+.3077 [300000+.0588Y]

= 100000+ 92310+ .018093 Y

Y -.018093 Y = 192310

.981907 Y = 192310

Y = 192310/.98190

       = 195854.98   (rounded to 195855)

X =300000+ (.0588*195855)

= 300000 + 11516

    = 311516

	B
Direct cost	240000
allocation from maintenance [311516*23.08%)	71897.89
allocation from personnel (195855*70.59%)	138254.04
Total cost	450151.93

correct option is "B" -450151.98