If you can include the formulas, I would like to learn them. 28-36. Kirby Indust

Question

If you can include the formulas, I would like to learn them.

28-36. Kirby Industries has two service departments (A and B) and three production departments (P, R, D). The following table shows the costs incurred at the two service departments, as well as the proportion of services provided by the two service departments to the other departments. Proportion of services provided to Costs Service $2,000,000 520,000 incurred department A B PR D 20% 30% 40% 10% 20% 15% 25% A B 40% 4 For example, service department A incurred $2,000,000 while providing 20 percent of its services to service department B, 30 percent to production department P, 40 percent to production department R, and 10 percent to production department D. Allocate the service department costs to the production departments using the direct method. (Use several decimal places for a more accurate calculation.) Answer: 28. P 29. R 30. D

Explanation / Answer

Part 1 : Allocation of service department costs using direct method.

First, we have to calculate the factors to apportion service department overhead.

Now we will multiply the service department overhead by the above factors to obtain the amount of overhead to be allocated to each production department.

Part 2 : Allocation of service department costs using the step method

Part 3 : Allocation of service department costs using the reciprocal method.

Let Total cost of A department = X

Total cost of B department = Y

X = $2,000,000+(Y*40%) (i)

Y = $520,000+(X*20%) (ii)

Putting the value of Y in equation (i)

X = $2,000,000+[(520,000+0.20X)*0.40]

X = 2,000,000+208,000+0.08X

X-0.08X = 2,208,000

0.92X = 2,208,000

X = 2,208,000/0.92 = $2,400,000

Y = 520,000+(2,400,000*20%) = $1,000,000

Department Sum of Percentages P R D A 30+40+10 = 80 30/80 40/80 10/80 B 20+15+25 = 60 20/60 15/60 25/60

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