Midland Rescurces has two production departments (Fabrication and Assembly) and

Question

Midland Rescurces has two production departments (Fabrication and Assembly) and three service departments (Engineerng, Administration, and Maintenance). During July, the following costs and service department usage ratlos were recorded artment Maintenance 10% 50% 30% 40% 20% 50% 50% 20% 10% Maintenance Direct cost 20% S36,000 $171,000 $45,DOO $315,000 590,000 Required Allocate the service department costs to the thwo operaling departments using the reciprocal method. (Do not round intermediate calculations.) Allocated to: Costs Fabrication Assembly Administration Total

Explanation / Answer

Use reciprocal method using only variable costs

Administration = $171,000 + 50%Engineering + 20%Maintenance =

Engineering = $36,000 + 20%Administration

Maintenance = $45,000 + 10%Administration

Administration = $171,000 + 50%Engineering + 20%Maintenance

= 171000 + 0.5*(36,000 + 20%Administration) + 0.20 * ( $45,000 + 10%Administration)

= 171000 + 18000 + 0.10 Administrative + 9000 + 0.02 Administrative

= 198000 + 0.12 Administrative

0.88 Administrative = 198000

Administrative = 225000

Engineering = $36,000 + 20%Administration

= 36000 + 0.20 * 225000 = 81000

Maintenance = $45,000 + 10%Administration

= 45000 + 0.1 * 225000

= 67500

Allocated to : Costs Fabrication Assembly Engineering 81000 8100 32400 Administrative 225000 112500 45000 Maintenance 67500 20250 33750 Total 140850 111150

Related Questions

Navigate

• Browse (All)
• Browse M
• Subjects

---