Joanne, owner of Automated Fabric, Inc., is interested in using the reciprocal a

Question

Joanne, owner of Automated Fabric, Inc., is interested in using the reciprocal allocation method for allocating support department costs to operating departments. The following data from operations were collected for analysis: overhead costs | $150,000 Personnel Weaving Maintenance ??M1(Support Dept) (Support Dept) W(Weaving Dept) $325,00 $175,000 ColourizingDept)-1 Services furnished: By Maintenance (budgeted labour-hours) to Personnel to Weaving to Colourizing Plant Maintenance 2 By Personnel (Number of employees serviced Weaving Colourizing Which of the following linear equations represents the complete reciprocated cost of the Personnel Department? P $150,000-$80,000 (500/6,000) M P # (5006000) M P $80,000+(500/6,000) M P $80,000

Explanation / Answer

Solution 1:

Reciprocated cost of personnel department = Direct cost + Allocated cost

= $80,000 + (500 / 6000) * Maintenance department cost

P = $80,000 + (500 / 6000) * M

Hence 3rd option is correct.

Solution 2:

Budgeted variable cost per hour = $600

Budgeted fixed overhead allocation rate per hour = Budgeted fixed cost / practical capcity

= $450,000 / 1250 = $360 per hour

Total cost per hour of use for CD division = Variable cost per hour + Fixed cost per hour = $600 + $360 = $960 per hour

Hence last option is correct.

Solution 3:

Standard setup hours for actual production = 15000 / 225 * 5.25 = 350 hours

Actual setup hours = 15000 / 250 * 5 = 300 hours

Efficiency variance for variable setup overhead cost = (SH - AH) * SR = (350 - 300) * $38 = $1,900 Favorable

Hence 3rd option is correct.

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