During the past month, the following costs were incurred in the three production
ID: 2400603 • Letter: D
Question
During the past month, the following costs were incurred in the three production departments and two service departments of Kim & Co.:
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
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 $ 247,000Explanation / Answer
Answers
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’
Equation #1
X
=
570000
+
10%
of
Y
X
=
570000
+
0.1Y
Equation #2
Y
=
1295000
+
40%
of
X
Y
=
1295000
+
0.4X
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]
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
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’
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