University Printers has two service departments (Maintenance and Personnel) and
ID: 2594009 • Letter: U
Question
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:
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.)
Maintenance Personnel Printing Developing Machine-hours 720 640 2,640 Labor-hours 247 342 1,311 Department direct costs $ 12,000 $ 22,000 $ 28,000 $ 23,000Explanation / Answer
Solution:
Service department cost = Direct Cost + Allocated Cost
Maintenance Department Cost = $12,000 + [247 / (247+342+1311)]* Personnel Cost
= $12,000 + 0.13*Personnel Cost
Personnel Department Cost = $22,000 + [720 / (720+640+2640)]* Maintenance Cost
= $22,000 + 0.18 * Maintenance Cost
Personnel Cost = $22,000 + 0.18 ($12,000 + 0.13*Personnel Cost)
Personnel Cost = $22,000 + $2,160 + 0.0234*Personnel Cost
Personnel Cost = $24,160 / 0.9766 = $24,739
Maintenance Cost = $12,000 + 0.13*$24,739 = $15,216
Cost Allocation:
From Cost Allocation To Maintenance Personnel Printing Developing Service Deparment Cost $12,000.00 $22,000.00 $28,000.00 $23,000.00 Maintenance(Maintenance Cost * Machine hours for deptt / Total Machine Hours) -$15,216.00 $2,739.00 $2,435.00 $10,042.00 Personnel
(Personnel Cost * Labor hours for deptt / Total Labor Hours) $3,216.00 -$24,739.00 $4,453.00 $17,070.00 Total $0.00 $0.00 $34,888.00 $50,112.00
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